ECONOMIC SYSTEMS Introduction to Business Marketing OBJECTIVES 35

ECONOMIC SYSTEMS Introduction to Business & Marketing OBJECTIVES (35) Explain the three basic economic questions. (42) Compare the American economic system to other economic systems.

Basic Economic Questions ◦ Each nation must answer the three economic questions when deciding how to use their limited resources. ◦ The economic questions define the nation’s economic system. 1. What goods and services should be produced? 2. How should those goods and services be produced? 3. For whom should the goods and services be produced?

ECONOMIC SYSTEMS TASK 42: Compare the American economic system to other economic systems.

Economic Systems Economists classify economic systems into three categories: ◦ Traditional Economies ◦ Command Economies ◦ Market Economies

Traditional Economy ◦ Allocation of resources is based on habit or customs: o tradition o religious practices o cultural beliefs & ideals ◦ Economic activities centered around the family unit ◦ Ex: Bangladesh, Nepal

Custom-Based Economy (Traditional) ◦ What: little choice as to what to produce ◦ How: bound to tradition; follow what their families have done for generations ◦ For Whom: tradition regulates who sells goods and to whom

Command Economy ◦ The economy is centrally planned and directed. ◦ Resources are owned and controlled by the government.

Directed Economy (Command) ◦ What: one person (dictator) or one governing body decides what to produce ◦ How: resources are owned and controlled (distributed) by the government ◦ For Whom: government decides who will receive which goods to meet basic needs

Market Economy Private enterprise drives the economy. ◦ Individuals own resources. ◦ Businesses compete for customers. ◦ There is NO government involvement. Found in societies with democratic forms of government where individuals control the economy.

Market Economy (Private Enterprise) ◦ What: consumers decide what will be produced by the purchases they make ◦ How: companies find the most efficient means of production to increase profits ◦ For Whom: people with purchasing power

COMPARING SYSTEMS Task 42: Examine the differences that exist between nations using different types of economic systems.