Economic Systems Objective 2 01 Compare different types

Economic Systems Objective 2. 01 Compare different types of economic systems: traditional, free enterprise, command mixed.

What is Economics? n Economics studies how individuals and societies seek to satisfy needs and wants through incentives, choices, and allocation of scarce resources. Technology Land Oil & fuel Doctors

Factors of Production n Economic Resources Natural Resources – raw materials found in nature that are used to produce goods n Human Resources – people’s knowledge, efforts, and skills used in their work n Capital Resources – used to produce goods and services (buildings, materials, and equipment) n Entrepreneurial Resources - recognize the need for new goods or service n n Scarcity – shortage of resources

Why Economic Systems? n n n Nations use economic systems to determine how to use their limited resources effectively. Primary goal of an economic system is to provide people with a minimum standard of living, or quality of life. Different types of Economic Systems n Traditional Economy n Market Economy (free enterprise) n Command Economy n Mixed Economy

Traditional Economy n Found in rural, underdeveloped countries– n n n Vanuatu Pygmies of Congo Eskimos & Indian tribes Belarus Customs govern the economic decisions that are made Farming, hunting and gathering are done the same way as the generation before n n Economic activities are centered around the family or ethnic unit Men and women are given different economic roles and tasks Advantages: people have specific roles; security in the way things are done Disadvantages: Technology is not used; difficult to improve

Market Economy (Free Enterprise) n n n Also called a Free Market n Economy or Free Enterprise Economy Businesses and consumers decide what they will produce and purchase and in what quantities Decisions are made according to law of supply & demand n n n Supply and demand of goods and services determine what is produced and the price that will be charged. Advantage— competition to have the best products and services Disadvantage— rift between wealthy and poor Note: a true market economy does not exist.

Command Economy n n The government (or central authority) determines what, how, and for whom goods and services are produced. Two types: n n Strong Command – where government makes all decisions (communism – China, Cuba) Moderate Command – where some form of private enterprise exists but the state owns major resources (socialism – France and Sweden) n Advantages n n n Disadvantages n n Guarantees equal standard of living for everyone Needs are provided for through the government Minimal choice Less variety of items No incentive to produce better products or engage in entrepreneurship Also known as a Planned or Managed Economy

Mixed Economy Combination of market and command economy n Government takes care of people’s needs n Marketplace takes care of people’s wants. n n Most nations have a mixed economy: United States, England, Australia Advantage—balance of needs and wants met by government and in marketplace Disadvantage— citizens have to pay taxes