2.01 Economic Systems Objective 2.01 Compare different types of economic systems: traditional, free enterprise, command and mixed.

Introductory Activity (The “Candy” Economy)

Scarce or Limited Resources Candy Activity Today Demonstrates a major problem that all societies face - Scarce or Limited Resources

The Economic Solution When faced with scarce resources, people and societies must make choices about allocation of resources. Allocation = An amount or portion of a resource assigned to someone or something.

What is Economics? Economics - the study of how individuals and societies make choices and satisfy the wants and needs of their people. They may do this through incentives, choices, and allocation of scarce resources

Why Economic Systems? 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 Traditional Economy Market Economy (free enterprise) Command Economy Socialist Economy Mixed Economy

Traditional Economy The type of economy where people believe in doing things the same as they have always been done in the past. Customs govern the economic decisions that are made Farming, hunting and gathering are done the same way as the generation before 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) 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—huge rift between wealthy and poor Note: a true market economy does not exist. Also called a Free Market Economy or Free Enterprise Economy Characterized by private ownership of businesses. Businesses and consumers decide what they will produce and purchase and in what quantities Decisions are made according to law of supply & demand

Command Economy Advantages Also known as a Planned or Managed Economy Economic system that is run by a central government or authority, such as a dictator. The government (or authority) determines what, how, and for whom goods and services are produced. The government is far less likely than private businesses to heed price signals (supply and demand) or to feel the discipline imposed by market forces. Advantages Usually less crime and poverty Basic needs are provided for through the government (minimum standard of living for everyone) Disadvantages Little variety of goods and services Individual freedoms are lost (government may decide what career you will have.) No incentive to produce better products or engage in entrepreneurship

Mixed Economy Combination of a market and command (managed) economy Government takes care of some basic needs. (School, protection) Marketplace takes care of people’s wants. 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

Factors of Production Economic Resources Natural Resources – “Gifts of nature” that are present without human intervention (ex. land) Human Resources – The knowledge, efforts, and skills people bring to their work, also known as labor. Capital Resources – Goods produced and used to make other goods and services. Entrepreneurial Resources - The initiative to improve goods and services or create new ones. Scarcity – shortage of resources

Factors that Govern Economic Systems Supply How much of a good or service a producer is willing and able to produce at different prices. Law of Supply As prices fall for a particular good or service, the demand for that item will increase and vice-versa.

Other Economic Principles Demand An individual’s need or desire for a good or service at a given price. Law of Demand As prices fall for a particular good or service, the demand for that item will increase and vice-versa.

Other Economic Principles Supply How much of a good or service a producer is willing and able to produce at different prices. Law of Supply As the price of a particular good or service increases, the supply for that item will also be increased and vice-versa.