Economic Systems The way a group of people produce and distribute goods and services.

GOODS  Goods -Things that people make or grow that satisfy economic wants. Goods Food Clothing CD DVD Video Games Candy

SERVICES Services- Actions that people do for each other to satisfy wants and needs. Services Teacher Gas and Electric Fire Department Police Department Grocer Doctor

1.What goods and services to produce/provide? 2.How the goods and services will be produced/provided? 3. For whom are the goods and services being produced/provided for? 3 Questions Economic Systems need to answer

Factors of Production (Resources) Natural: gifts of nature-land, water, minerals, etc. Human: people with special knowledge, skills and abilities. Capital: things we make such as factories, equipment, machinery and roads to produce other goods and services.

Scarcity & Opportunity Cost Scarcity –Definition: Condition in which wants exceeds resources. It requires a choice… Its when we can’t have everything we want.

Scarcity You have $40 You must choose how to spend this money Your choices …. A new shirt, cost $ DVDs, $ CD’s Saving this money to purchase an XBOX in the near future.

Opportunity Cost Is what you give up when you choose one of the items.

Lets say you chose to save the money for a future purchase Your opportunity cost is what you gave up New shirt 2 DVDs 3 CD’s

4 Types of Economic Systems 1.Command 2.Traditional 3.Market 4.Mixed

Traditional Economy Definition When people grow or make their own goods Characteristics Not in Global Economy (Unindustrialized Countries) Use of Barter System (Trade goods for goods) Production & Distribution of goods/services is based on customs and traditions of society. Based on how things were done in the past. Examples Found in remote Rural areas (Congo/Amish)

Command ECONOMY Definition: Government makes all economic decisions and controls everything Characteristics: No competition Government determines For Whom, how and what products will be made Prices of products People are not free to choose what to buy or sell

Examples:  Communism – economic system in which the central government directs all major economic decisions.  Socialism – Government has some controls over basic means of production the rest are privately owned and operated. Command ECONOMY Con’t

Market ECONOMY Definition: People are free to obtain goods and services in any way they want Characteristics: Competition exists NO Government REGULATION or INTERFERENCE Consumers are NOT protected by unfair business practices. Goods are produced to meet public demand. Private businesses produce goods for profit

Examples: NNo current nation has a true market economy CCapitalism– Economic decisions for production are made by people and are based on profit motive. Market ECONOMY Con’t

Mixed ECONOMY Definition: Relies on a combination of all the other three economic systems Characteristics: People CHOOSE what they buy and sell. Competition is encouraged. Government regulates business to protect consumers Business determines what is produced based on what consumers want. Goods are produced to meet public demand.

MIXED Economy Con’t Examples:  United States  Most of the countries in the world have some sort of mixed economy