The Economic

System
 Traditional Economy
 The Market Economy
 Planned Economy
 Mixed Economy
Traditional Economy
Traditional Economy
 Traditional Economy
• It is the earlier method of allocating resources
consisted of traditional patterns.
• The forces of tradition answered the
fundamental questions.
• Young people followed the footsteps of their
ancestors in the choice of occupations.
Market Economy
 Market Economy
• Also known as Free Market Economy
• The manner of exchanging and trading of
goods and services
• What to produce is determined by what the
people need
• It allows much more freedom
• Invisible Hand is involved
 Market Economy
• Transactions in this market occur when both
buyers and sellers agree on the price of a given
good or service.
• Government intervention is minimal
• The success of a business largely depends on
the demand and price of the product
Planned Economy
 Planned Economy
• Also known as Command Economy
• The complete opposite of a market economy
• It is mostly government controlled with the
government deciding everything
Planned Economy
Mixed Economy
 Mixed Economy
• The government would have some input in
such economic problem
• A mix of a rather free economy such as market
combined with planned economy as well as
avoiding the issues with capitalism and
socialist theories
 Adam
Smith
and the
Invisible
Hand
 Adam Smith
• Founder of Classical School
• Constructed how social behavior
is regulated
• He viewed the world where
everyone sought his own self
interest but constrained by
morality, markets, and
government.
 Adam Smith
Developed an analysis of the moral system
through his books:
– “The Theory of Moral Sentiment” (1759)
– “Wealth of the Nation” (1776)
Developed an analysis of the moral system
through his books:
– “The Theory of Moral Sentiment” (1759)
– “Wealth of the Nation” (1776)