Economic Systems or Even Nations Must Choose

Name: Mary Ann Brown

Date: ____11/18/20_____

Individuals choose. Business owners choose too. Even the leaders of nations must
choose. People choose because resources are limited (scarcity). No person can have
everything he wants or needs. So, choices must be made.

In fact, every society must answer three key economic questions:

1. What goods and services will be produced?
2. How should these goods and services be produced?
3. Who will consume these goods and services?
Of course, there are different ways to answer these questions. The answers to these
questions will determine the nation’s economic system. Economists recognize four
economic systems: a traditional economy, a free market economy, a command or centrally
planned economy, and a mixed economy. Each economic system answers the key economic
questions differently.
Questions:
1. Why must people choose? People choose because resources are limited.

2. What questions must a society answer?

-What goods and services will be produced?
-How should these goods and services be produced?
-Who will consume these goods and services?

2. ________________________________________________________________________
Traditional Economy
Free Market Economy
Command or Centrally Planned
Economy
• Based on habit, custom, or ritual
• In other words, people produce
and consume as their ancestors
did.
• Sons perform the same jobs as
fathers.
• Individuals answer the economic
questions
• People are free to buy and sell
based on their resources
• The government does not
intervene
• The government makes all
economic decisions
• The government owns the factors
of production
• The government decides

Mixed Economy • Combines the different systems

Now, you try. I will provide a quotation and you will determine whether the person
who spoke the words lived in a traditional economy, a free market economy, a
command or centrally planned economy, or a mixed economy.

I live in a “I do as I am told. The government

command or centrally planned economy makes all economic decisions. If we are
told to produce more boots, we produce
more boots.”
I live in a “I went to the supermarket and I had
many choices. I could even buy a
free market economy dangerous product. The government
does not regulate products.”

I live in a “My father grew yams. I grow yams.

My father used a certain tool. I use the
traditional economy same tool. I do not need to change. My
ancestors have given us the right way to
live.”
I live in a “We have many freedoms but the
mixed economy government does intervene when
necessary. It orders companies to place
warning labels on dangerous products.”
I live in a “Sons do as their fathers did. Daughters
traditional economy do as their mothers did. We do not
change. We keep our traditions. There
is security in keeping traditions.”
I live in a “The government controls many
mixed economy factories and farms but farmers can
keep some of their crops. If we work
hard, we can keep some of what we
grow.”
I live in a “My father owned a factory. He sold
mixed economy shoes. But I do not want to sell shoes. I
want to sell guitars. Fortunately, I can
change production in my factory. I am
free.”
I live in a “I do not question the leaders. They tell
Command or Centrally Planned me to work in this factory. I work in this
Economy factory. They tell me to make guns. I
make guns. To question the party is
dangerous.”

I live in a “I live in the United States. There are

mixed economy many freedoms, but the government
does not allow people to sell dangerous
products.”
☺