Chapter 2 Presentation 1 Economic Systems

Economic System A system used to coordinate an economy and determine what types of goods are produced, how many goods, and who gets the goods

Differences in Economic Systems 1. who owns the factors of production 2. the method used to motivate, coordinate, and direct economic activity (ie $, fear) Polar opposites: Command System and Market Economy

Command System Communism is considered a command economy Government ownership of property and many decisions are made through a central planning agency ***a pure command economy has all decisions made by the government

Current Command Economies China Cuba Laos North Korea Vietnam

North Korea at Night

Market System (Capitalism) Characterized by private ownership of resources and the use of markets and prices to coordinate and direct economic activity Leads to competition between independent buyers and sellers

Laissez-Faire “Let it Be” Pure capitalism in which the government “keeps its hands off” and lets business run its course

Characteristics of a Market System 1. Private Property- land, capital and intellectual property (patents, copyrights and trademarks) 2. Freedom of Enterprise- freedom to obtain and use resources to produce and sell goods/services 3. Freedom of Choice- allows consumers to buy/sell, workers can enter any field if they are qualified

Characteristics of a Market System Contd. 4. Self- Interest- each economic unit tries to achieve its own particular goal (ex. Entrepreneurs try to maximize profit) 5. Competition- 2 or more buyers and sellers acting independently and freedom of buyers and sellers to enter or leave the market

Characteristics of a Market System Contd. 6. Specialization- an individual, firm, region, or nation produces one or a few goods and services rather than the entire range of goods and services 7. Division of Labor- the separation of the work required to produce a product into a number of different tasks that are performed by different workers

Characteristics of a Market System Contd. 8. Use of Money- medium of exchange and a store of value 9. Active but limited government

Consumer Sovereignty Determination by consumers of the types and quantities of G/S that will be produced with the scarce resources of the economy Give their “dollar votes”