Introduction to Business, Economic Resources and SystemsSlide 1 of 60 Making Decisions About Production No society has enough productive resources available to produce everything people want. Every society must, therefore, make choices. Rules and regulations determine choices.

Introduction to Business, Economic Resources and SystemsSlide 2 of 60 Basic Economic Questions A society makes economic choices by answering three economic questions: What should be produced? How should it be produced? Who should share in what is produced?

Introduction to Business, Economic Resources and SystemsSlide 3 of 60 What Should Be Produced? Deciding to use a resource for one purpose means giving up the opportunity to use it for something else. What is this called?

Introduction to Business, Economic Resources and SystemsSlide 4 of 60 How Should It Be Produced? When a society decides what to produce, it must also address other types of questions, such as what methods will be used, how many people will work on the production, and what will be the quality of the items produced?

Introduction to Business, Economic Resources and SystemsSlide 5 of 60 Who Should Share in What Is Produced? This question focuses on the concept that people can’t get everything that they want because society doesn’t have enough resources.

Introduction to Business, Economic Resources and SystemsSlide 6 of 60 Who Should Share in What Is Produced? In most societies, people can have as many goods and services as they can afford to buy based on the income they receive.

Capitalism, Socialism, and Communism

Capitalism ► Capitalism – an economic system based on private ownership and on the investment of money in business ventures in order to make a profit.

Capitalism ► Adam Smith  University professor in Scotland  Supported Capitalism  Wrote “The Wealth of Nations”

Capitalism ► Ideas:  Businesses compete with each other for the consumer’s money.  Each business tries to provide goods and services that are better and less expensive than their competition.

Capitalism  A market economy aims to produce the best goods at the lowest prices. ► Supply and Demand

Capitalism  Government should not interfere in the economy. ► Laissez faire

Capitalism  Laissez faire – letting owners of industry and business set working conditions without interference ► No government regulations, such as minimum wage laws

Market Economy (Free Enterprise) Also called a Free Market Economy or Free Enterprise Economy Also called a Free Market Economy or Free Enterprise Economy Businesses and consumers decide what they will produce and purchase and in what quantities Businesses and consumers decide what they will produce and purchase and in what quantities Decisions are made according to law of supply & demand Decisions are made according to law of supply & demand 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.

Introduction to Business, Economic Resources and SystemsSlide 15 of 60 Command Economy In a command economy a central authority makes the key economic decisions. A command economy is also called a planned or managed economy.

Introduction to Business, Economic Resources and SystemsSlide 16 of 60 Command Economy There are two types of command economies. In a strong command economy, such as communism, the state makes all the economic decisions.

Introduction to Business, Economic Resources and SystemsSlide 17 of 60 Command Economy In a moderate command economy, also called socialism, there is some form of private enterprise. The primary advantage of a command economy is that it guarantees everyone an equal standard of living.

Introduction to Business, Economic Resources and SystemsSlide 18 of 60 Command Economy There are some disadvantages to a command economy. Since the state provides all goods and services in a strong command economy, there is little choice of what to buy.

Introduction to Business, Economic Resources and SystemsSlide 19 of 60 Command Economy Another disadvantage to the command economy is that there is no incentive for entrepreneurship when you can’t run your own business.

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

Communism “The worker of the world has nothing to lose, but their chains, workers of the world unite.” - Marx “From each according to his/her ability, to each according to his/her need."

Socialism “From each according to his/her ability, to each according to his/her work."

Socialism ► Government actively regulates the economy  Controls major industries and resources.

Communism ► Communism – an economic system in which all means of production are owned by the people, private property does not exist, and all goods and services are shared equally.

Communism ► Karl Marx  German journalist  Radical Socialist  Wrote “The Communist Manifesto”

Communism ► Friedrich Engels  Son of a wealthy German textile entrepreneur  Radical Socialist  Co-Wrote “The Communist Manifesto” and “Das Capital”

Communism ► In many ways, Communism was a reaction to the Industrial Revolution and Capitalism

Communism ► The Industrial Revolution intensified class struggle (rich vs. poor)  “Haves” take advantage of “Have-Nots” (proletariat)

Communism  Workers are exploited by employers  The labor of workers profits employers

Communism ► Marx and Engels called for workers of the world to unite and overthrow the rule of the rich.  Wealth would be redistributed  Classes and private property would cease to exist