Economic Systems

Traditional Command Market

Scarcity

Scarcity Is caused by unlimited wants and limited resources. The existence of

scarcity forces us to make choices
 Three Questions of Economics
Unlimited Needs Limited
Scarcity
and Wants Resources

Three Questions of Economics

What to produce?
How to produce it?
Who gets it?

Traditional Command Market

Three Questions of Economics

Scarcity forces every society to answer three questions

What to produce since resources are scarce we must decide what to produce

How to produce we must decide what combinations of resources to use to

produce the good

Who gets it how will we decide to who gets the good after its
been produced
Economic System
An economic system is society’s way of coordinating the production and
consumption of goods and services

It is basically the way a society answers the three questions of economics

Economic System
Traditional System
A traditional system is one in which the three questions of
economics are answered by tradition and custom
Three Questions under a Traditional System

What
How
Native people in Alaska hunt
whale The whales are hunted using
mostly traditional methods

Who Gets
Traditional System
There is a very elaborate system set up by Inuit's to determine who gets what part of the
whale, when and how much
Command System
A command system is one in which some central authority
makes the decisions

Stalin: USSR Mao: China Karl Marx

Command System

This is a store in the old Soviet Union. Notice the empty shelves.
Command System
Command systems usually will place an emphasis on the production of
capital goods and not consumer goods.
Command System
Command systems do produce stability with employment and prices but
there is a loss of freedom.

In North Korea, women are allowed to only have one of the listed hairstyles
Market System
A market system is one in which the allocation of goods and
services is determined by supply and demand
Market System

Supply and Demand determine the price of

the good, and the price of the good
determines its value in our economy.
Goods that are highly valued have high
prices. This high price encourages
consumers to cut back on the good, but it
also encourages producers to produce more
of the good.
Market System
Anybody living in Midland/Odessa is aware of how hard it is to find an apartment. As
the demand for apartments increased, rents increased as well. As rents increased, it
became more profitable to build apartments. More apartments got built and it
became much easier to get an apartment. All this happened through the mechanism
of the market system.
Market System
Market systems are very dynamic. There can be periods of
unemployment and price instability, but the system will allocate goods
and services to their highest valued use, and the system will create
new goods and services and increase the standard of living of society.
Market System
Japan, South Korea, and the US are examples of
market based economies.
The Case of China
The People’s Republic of China has been transitioning from a
command economy to a market based economy
The Case of China
Required reading has gone from Mao’s “Little Red Book” on how
to be a good communist to reading “Vogue” to keep up with
fashion trends.
The Case of China
The question is whether China continues its economic growth
and become the largest economy in the world or do they
stagnate