Economic Systems Additional Notes from Intro to Econ and Chapter 17 Packet

Types of Economic Systems Traditional Based on past traditions Command Economy Government makes all decisions Government owns capital (manufactured goods used to make other goods and services) Market Rational self-interest Free market sets prices through competition Mixed Some government control WHAT ARE SOME EXAMPLES OF EACH OF THESE IDEAS? WHAT ARE THE PROS/CONS OF EACH SYSTEM?

How Markets Work Scarcity (NOT A SHORTAGE) Law of Supply: Businesses will produce more when prices are high Law of Demand: People will want more when a price is low Capitalism: productive resources are owned by private citizens Monopolies: One company is the only one selling a product in a market EXPLAIN THE DIFFERENCE BETWEEN SCARCITY AND SHORTAGE. ARE MONOPOLIES BAD? CAN MONOPOLIES SELL GOODS FOR ANY PRICE THEY WANT?

Types of Businesses Sole Proprietorships Small business owned by one person PROS: own boss, hours chosen by you, profits are yours CONS: high costs shouldered by owner, high risks Partnerships Two or more people share the responsibilities, costs, profits, losses PROS: own bosses, choices, profits, more people to shoulder costs CONS: same as sole proprietorships Non-profit organization Provide goods and services without seeking to earn a profit Examples: charities, research groups, etc.

Corporations Recognized as separate legal entity from owners Raise money through stock (shares of ownership) Profits paid to stockholders are known as dividends Must hold one meeting each year when all stockholders can attend to elect board of directors Board will choose officers (CEO, President, etc.) Debt protections through sale of assets WHAT ARE SOME ADVANTAGES OF BEING IN A CORPORATION? WHAT ARE POTENTIAL DISADVANTAGES?

Factors of Production Natural Resources Raw materials needed to produce goods that come directly from nature Only a factor of production if there is a payment to use Example: Land for businesses Capital Equipment that makes other goods and services Financial Capital: Money used to buy these tools/equipment Labor All human effort, skills, and abilities used to produce goods/services Entrepreneurs HOW ARE ALL OF THESE NECESSARY FOR A COMPANY/NATION TO PRODUCE GOODS?