The document discusses different economic systems including traditional, command, market, and mixed economies. It provides examples of each system and explains who makes decisions about what to produce, how to produce goods and services, and who consumes the goods in each system. Australia is described as having a mixed economy that is close to a market economy, with very few government restrictions on business.

1. Economic Systems
Unit 12 Notes

2. Different Economic Systems
• Scarcity refers to the limited supply of
something
– Every country must deal with the problem of
scarcity since no country has everything that
its people need/want
• Every country must develop an economic
system to determine how to use its limited
resources to answer the three basic
economic questions:
– What goods/services will be produced?
– How will goods/services be produced?
– Who will consume the goods/services?
• The way a country answers these
questions determines its economic system

3. Traditional Economy
• An economic system in which
economic decisions are based on
customs and beliefs
• People will make what they always
made & will do the same work their
parents did
• Exchange of goods is done through
Bartering: trading without using
money

4. Traditional Economy
• Who decides what to produce?
– People follow their customs and make what
their ancestors made
• Who decides how to produce goods &
services?
– People grow & make things the same way that
their ancestors did
• Who are the goods & services produced
for?
– People in the village who need them

5. Traditional Economies
• Examples:
– Villages in Africa and South America
– the Inuit tribes in Canada
– the caste system in parts of rural India
– the Aborigines in Australia

6. Command System
• Government makes all economic decisions
& owns most of the property
• Governmental planning groups determine
such things as the prices of goods/services
& the wages of workers
• This system has not been very successful
& more and more countries are
abandoning it

7. Command Economy
• Who decides what to produce?
– Government makes all economic decisions
• Who decides how to produce goods and
services?
– Government decides how to make
goods/services
• Who are the goods and services
produced for?
– Whoever the government decides to give
them to

8. Command System
Countries with communist
governments have command economies
– Examples: Cuba, former Soviet Union, North
Korea
• The government of Australia controlled
one part of the economy in the past --
government-owned companies
controlled telecommunications
– Government set the price for having a
phone, the cost of calls, and wages were
the same in all parts of the country
– In 1989, the company was made into a
private business with stockholders owning
the company

9. Market Economy
• An economic system in which economic
decisions are guided by the changes in
prices that occur as individual buyers and
sellers interact in the market place
– Most of the resources are owned by private
citizens
• Economic decisions are based on Free
Enterprise (competition between
companies)
– Important economic questions are not
answered by government but by individuals
– Government does not tell a business what
goods to produce or what price to charge

10. Market Economy
• Who decides what to produce?
– Businesses base decisions on supply and
demand and free enterprise (PRICE)
• Who decides how to produce goods and
services?
– Businesses decide how to produce goods
• Who are the goods and services
produced for?
– consumers

11. Market Economy
• There are no truly pure Market
economies, but Australia’s is close:
– It is considered one of the most free
economies in the world
– Businesses operate without too many rules
form the government
– People are free to start a business and can
do so quickly
– Courts use the laws of Australia to protect
the property rights of citizens

12. • In a truly free market economy, the
government would not be involved at all
– There would be no laws to protect workers
form unfair bosses
– There would be no rules to make sure that
credit cards were properly protected
• Many societies have chosen to have
some rules to protect consumers,
workers, and businesses (MIXED)
– These rules reduce the freedoms that
businesses have, but they also protect the
workers and consumers

13. Mixed Economy
• Market + Command = Mixed
• There are no pure command or market
economies. To some degree, all modern
economies exhibit characteristics of both
systems and are often referred to as
mixed economies.
– Most economies are closer to one type of
economic system than another
• Businesses own most resources and
determine what and how to produce, but
the government regulates certain
industries

14. Mixed Economy
• Who decides what to produce?
– businesses
• Who decides how to produce goods
and services?
– Businesses, but the government regulates
certain industries
• Who are the goods and services
produced for?
– consumers

15. Mixed Economies
• Most democratic countries fall in this
category (there are no truly pure Market
or Command economies).
– Examples:
Brazil, Mexico, Canada, UK, US, Germany, R
ussia, Australia, etc.

16. Australia’s Economy
• One of the freest economies in the
world
• It is technically a mixed economy, but
it’s close to market because there are
very few rules to restrict the market
• Government does not own major
industry or business
– Prices are set by the agreement of buyers
and sellers rather than by government rules

17. Australia’s Economy
• People are free to own their own
businesses and property
– They decide what they want to produce
• Buyers and sellers are able to agree on
prices, and competition between sellers
helps to keep the prices good for buyers
• Business owners and consumers can
depend on good laws to protect them
– Courts are considered fair and honest
• It is very easy to start a business in
Australia – the paperwork usually takes
less than a week!

18. Economy Continuum
Command Market
Germany UK US
Cuba Russia Australia