Economic Systems Business Management

Today’s Objective Compare economic systems, free markets, and economic-political systems 3 major economic systems 3 economic-political systems Consider societal impacts and long- range prospects of each system.

Economic Questions Economic systems are determined based on the three economic questions.

The Economic Questions Each nation must answer these questions when deciding how to use their limited resources. The way the questions are answered defines the nation’s economic system. What goods and services should be produced? How should those goods and services be produced? For whom should the goods and services be produced?

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

MARKET Economies Individuals own the means of production. There is NO government involvement. Businesses compete for customers. It is called a market economy because the market is what drives business.

Market Economies 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: the people with purchasing power WHAT – consumers have purchasing power, the power of the dollar bill. Poor products will not be purchased and those businesses will cease to exist.

Think About It… Are there any pure market economies in the world today?

Market Economies Today Prices would be freely set based entirely on laws of supply & demand No such thing! Term used to describe economies largely dictated by market forces Example: United States (private ownership, free enterprise)

COMMAND Economies All economic decisions are made by the country’s government. Wealth is shared equally among all to ensure everyone’s basic needs are met. It is called a command economy because business is driven by government commands. The market has no influence over setting prices.

Command Economies What: one person (usually a dictator) decides what will be produced How: resources are owned and controlled by the government For Whom: government decides who will get which products

Think About It Are there any pure command economies in the world today?

MIXED Economies NO economy is purely any one economic system. Mixed economies have government-operated or government- regulated enterprises combined with individually owned enterprises. The United States is a mixed economy with strong characteristics of a market economy. Government has some involvement in business Government influence is limited by laws and regulations

Mixed Economies Capitalism Communism Socialism Nations today typically follow one of three different economic-political systems. Capitalism Communism Socialism

Capitalism Characterized by: Role of Government Marketplace competition Private ownership of business Role of Government Support the people Take care of those that cannot care for themselves

Characteristics of Capitalism Private Property Profit Price Determination (set your own) Competition Distribution of Income

Think About It… Because capitalism is a mixed economy, we have some government- regulated industries. What are some of our government- regulated industries? Capitalism is also characterized by private ownership. Businesses are free to compete without government interference. Think of an example of two businesses that are competitors against each other.

Consider the U.S. The U.S. economy is primarily characterized by capitalism but also has some elements of socialism. Most decisions are left to private business & consumer choices The government provides public enterprise, like defense, education, aid for low-income, social security, etc.

Communism Characterized by: TOTAL government control In theory, this ensures everyone will be equal. In reality, there is nothing to drive people to better themselves or to work hard. Examples: North Korea, Cuba, China Examples: North Korea, Cuba, China

Let’s Look at China China’s economic-political system is frequently referred to as a socialist market economy. Key industries are government owned. Prices are allowed to fluctuate based on the market.

Socialism Similar to capitalism, but with greater government involvement More social services Higher taxes to pay for gov’t services Key industries are government-run Examples: Canada, Germany, Sweden Social services – ensure a good standard of living Taxes – help finance government services Key industries – telecommunications, natural resources, transportation, banking Examples: Canada, Germany, Sweden

Review What are the 3 economic questions? What are the 3 types of economies? How is each system characterized? What are the 3 economic-political systems (mixed economies)?

Poster Project! You will be assigned to a group. Each group will be given a country. Examine the societal impacts of your country’s economic-political system. What are the long-range prospects of your country’s system? How resources are allocated How much government regulates ownership, taxation, and allocation of goods/services How marketing decisions are made Production figures & prosperity forecasts