Types of Economic Systems: Market, Mixed, and Planned Economies, Study notes of Market economy

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Types of Economic Systems

Market

Economy

(United States) Mixed Economy (Canada) Planned Economy (Cuba, China North Korea)

Economic Spectrum

more gov't involvement less gov't involvement Zoo (^) Game Reserve Jungle

Mixed Economy

• AKA Game Reserve

1. Some resources are publicly owned and some are privately owned.
2. Individuals and gov't both make decisions about what to produce (partly "Supply and Demand").
3. Individual consumers and government influence economic decision making.***Competition

Planned Economy

• AKA Command Economy, Centrally-Planned Economy, Zoo

1. Resources are publicly owned.
2. Government makes decisions about how to use resources.
3. Individual consumers have little influence on economic decision making.*** Almost NO Competition

Cuba China North Korea

Jungel VS. Zoo

How would you describe a

Jungle?

How would you describe a Zoo?

Which economies do these two metaphors describe? Jungle Zoo

Market Economy OR Free

Market OR Capitalism

Centrally Planned Economy

The American Economy

Capitalism

* System in which private individuals own the factors of production

* Adam Smith proposed this system – government has little to do

with the economic system

Laissez-faire

“let people do as they choose”

Another name for pure capitalism

Free Enterprise System

Another name for capitalism

The basic motivation in the Market Economy is to make (^) $$$$$!

A Very Important Dude …

Adam Smith

Economist (1723 – 1790)

Philosopher

Father of the Market Economy

Argued for “The Invisible Hand”

• Adam Smith published the Wealth of Nations in 1776
• Foundation for understanding of capitalism
• Defined Market, Laws of Supply and Demand
• Thought that each person was pursuing their own best

interest.

• This meant maximizing profits

Invisible Hand - Term used by Adam Smith to describe

the natural force that guides free market capitalism

through competition for scarce resources. Each

participant will try to maximize self-interest and enable

each participant to be better off than when simply

producing for himself/herself. NO regulation of any

type would be needed to ensure that the mutually

beneficial exchange of goods and services took place,

since this "invisible hand" would guide market

participants to trade in the most mutually beneficial

manner.

Invisible Hand

The goal of a market economy is to best meet the desires of consumers. The consumer is the king!

Free Market Economy

Positives (^) Negatives

In a Mixed Economy such as Canada, the

government plays a more active role than

in a Free Market.

Consumer choice AND Gov't intervention

both play dominant roles

Monopoly - a market in which there are many buyers but only ONE seller. What does this mean for prices?