Types of Economic Systems

1. Types of Economic Systems Supply and Demand Price

2. Supply and Demand • Demand – the amount or quantity of goods and services that consumers are willing to buy at various prices • Supply – the amount of goods and services that producers will provide at various prices • Equilibrium price – where quantity demanded and quantity supplied meet

3. Demand Curve for new iPhone 5 Price per phone $ Numbers of phones demanded (in thousands)

4. Supply Curve for new iPhone 5 Cost of iPhone Number of phones demanded (in thousands)

5. Market Economy • Economic decisions are made in the marketplace according to the laws of supply and demand • Marketplace – anywhere money changes hands • Also called – private enterprise system; capitalism • Resources privately owned • You decide how to run business; what to sell; what to charge; where to shop

6. Command Economy • A central authority makes the key economic decisions; usually the government or state • Also called planned or managed economy • A strong command economy is known as communism-state makes all economic decisions and controls all resources for the common good • A moderate command economy is known as socialism-state owns major resources and makes key economic decisions • Some form of private enterprise; individuals may own some businesses

7. Mixed Economy • A combination of market economy and command economy • State (government) takes care of people’s needs while the marketplace takes care of people’s wants • U.S. has a mixed economy • Government – defense, education… • Marketplace – cars, computers, fast food…