Economic Systems An economic system is the way in which decisions about what will be produced are made. There are three possible types of economic system: PLANNED ECONOMY – An economic system in which the government decides what will be produced. MARKET ECONOMY – An economic system in which producers and consumers are free to produce and consume as they wish. Supply and demand control the economy – no country in real life has total market control.

MIXED ECONOMY – An economic system in which there is both private and public sectors. Some resources are controlled by private firms and others by the government. The government tries to manage the economy in the interests of the people.

Advantages of Planned Economies Disadvantages of Planned Economies Government controls production to make sure essential goods and services are produced Difficult for officials to decide what goods and services will be needed Government can control distribution to ensure everyone has reasonable standard of living Production may be inefficient – managers and workers have little incentive because there is no profit motive Shortages of goods can occur and this leads to the development of a black market There may be no choice for the consumer

Advantages of Market Economies Disadvantages of Market Economies What is produced is decided by the consumers and producers who buy the products Producers will only produce those goods that make them a profit – they may not produce some goods and services for poor people or that benefit society as a whole The profit motive encourages enterprise and efficiency There may be great inequalities in income Competition exists between producers – this should lead to more choice and cheaper prices Firms, motivated by private profit, may ignore social costs of production

QuestionTime Write an Explanation of the advantages of having a mixed economy TWO MINUTES THEN WE WILL DISCUSS ANSWERS

The Most Important Areas of Government Control Are: HEALTH EDUCATION DEFENCE PUBLIC TRANSPORT WATER SUPPLY ELECTRICITY SUPPLY

PRIVATISATION When businesses are sold off by the government to the highest bidder. This process means the business moves from the PUBLIC sector to the PRIVATE sector. WHY DO GOVERNMENTS DO THIS?

ADVANTAGES Profit is the main aim - therefore efficiency (no waste) is crucial! Competition encouraged  healthy for the industry and the customer benefits from CHOICE & LOW PRICES Governments RAISE CAPITAL to fund other services E.G. Banks in England

Disadvantages Some services closed if make a loss – no fire or health service! Is this good! Workers may lose jobs Could be sold to one owner  MONOPOLY – is this good?? Only few benefit from profit – before all public would benefit.

Homework Investigate the term – ‘Credit Crunch’ What is it How did it happen What have been the effects around the world