Economic System

Video 4:

Nearly every society in the world faces the fundamental problem, how to distribute limited resources to people in a way that will be fair and effective. This is what is called scarcity and different societies approach this problem in different ways. There are four essential types of economic systems.

·         The traditional economy is based on culture and rituals, and is focused on the community as a whole. Everyone pitches in and benefits from everyone else his efforts. Small societies focused on subsistence farming and hunting are considered traditional economies. An example would be a traditional Inuit village in North America.

·         A command economy relies on the government to make all economic decisions, including allocating and distributing resources and regulating prices and wages. A modern example of a command economy would be North Korea.

A market economy is driven by consumers whose decisions determine how the industries and financial markets will operate. Individuals choose how their resources are used what goods to make what services to provide and what jobs to take.

In a pure market economy there is no government involvement because of this there are no true pure markets economies.

·         Most societies today have mixed economies. Which utilize limited government involvement while also applying free-markets. One example would be the United States. However nearly all other countries are formed of mixed economy as well, each is unique and faces the challenge of finding proper balance between consumer choices and government control.

Activities:

1. What is the fundamental economic problem in every society?

One of the fundamental problems is scarcity of resources because the humans are misers and they can't use all the resources.

2. What kind of societies are considered traditional economies?

The traditional economy is based on culture and rituals, and is focused on the community as a whole. Small societies focused on subsistence farming and hunting are considered traditional economies

3. Which are the characteristics of a command economy? Example

The government is the one that he puts the price of the things and say what to produce, how to produce and for whom it is produce. Example: North Korea

4. North Korea economy. Explanation

In North Korea the is command economy. North Korea economy is driven by consumers whose decisions determine how the industries and financial markets will operate individuals choose how their resources are used what goods to make what services to provide what jobs to take

5. Which are the characteristics of the market economy? Example

The consumers. They are the only ones who answer to questions of production. So, when you're looking at what to produce, it is completely and totally up to consumers. When you look at how to produce it, businesses are the ones who choose what they're going to produce and then, if consumers don't buy, the businesses go out of business. And for who to produce these goods, it's based on consumer income. If they can afford it, they can buy it. There is no government regulations which means that absolutely nothing would be illegal. If there is a market for it, people can buy it, so there are no protections for consumers.

6. Difference between the mixed economy and the pure market economy?

That the mixed economy uses limited government participation and the market economy is driven by consumers decisions.