Different Types of Economic Systems

Name: ______Class: ______Date: ______

Bell Ringer: IPENCIL

  1. How many people does the author say actually know how to make a pencil?
  2. How many people does the author estimate are involved in some way – directly or indirectly – in the making of pencils?
  3. Of the total of all the knowledge and skills involved in creating a pencil, how much does any single person contribute to the process, according to the author?
  4. According to the author, is there any “master mind” or dictator forcing or directing everyone to do the particular jobs that are needed to make pencils?
  5. What is the “miracle” that is involved in the making of pencils?
  6. What does the author think about the government running the process of making pencils?
  7. What is the lesson about freedom and free that the author wants the reader to learn from this story

Incentives/Disincentives:

What is an incentive?

How do incentives relate to self-interest and utility?

What is a disincentive? What is one example of a disincentive?

Why are incentives and disincentives effective?

Why do incentives and disincentives sometimes fail?

What is a perverse incentive?

How can we make sure that the type of incentives we set up are effective?

Different Types of Economic Systems:

What is an economic system?

What are the different goals of an economic system?

The way a society answers these questions will depend on what that society’s values are. Here are some possibilities:

  • Economic Freedom – ______
  • Economic Efficiency – ______
  • Economic Equity – ______
  • Economic Security – ______
  • Economic Stability – ______
  • Economic Growth – ______

These are four basic types of economic system:

  1. Traditional Economy:
  • ______and ______dictate what to produce, how to produce it, and for whom.
  • Hunting, fishing, and farming are the ______economic activities in such an economy.
  • Although traditional economies are rare in the ______, some still exist (i.e. in Papua, New Guinea); also, some peoples like the Amish or the Inuit organize their lives that way.

What are the advantages and disadvantages of a traditional economy?

Advantages / Disadvantages
  1. Command economy:

  • The ______decides how much workers should produce.
  • Rulers and centralized governments impose their ______on society in the form of production quotas, etc.
  • Governmental ______and planners perform the function of a market.
  • Some empires in the distant past had command economies. One example is Ancient Egypt.
  • A more recent example of a command economy is the former Soviet Union.

Advantages / Disadvantages
  1. Market economy:

  • In this economic system, ______decide what to produce and what to buy
  • Buyers and sellers exchange goods andservices ______
  • An ______seems to coordinate economic activity (Adam Smith)
  • The government plays little if any role in the marketplace
  • Property rights are ______

Advantages / Disadvantages
  1. Mixed (or hybrid) economy:

  • Both the ______play important roles in deciding how much to produce and what to buy
  • The government’s role in a mixed economy could ______from country to country. In some its function could be limited to enforcing the laws and regulating the currency whereas in others it could involve many of the trappings of the welfare state, such as universal health care, free day care, and so on.

Advantages / Disadvantages

Typically involves aspects of a market economy (competition) and government involvement (such as environmental regulations and the social safety net).