Economic Systems Economic Systems Objective 2.01 Compare different types of economic systems: traditional, free enterprise, command and mixed.

What is Economics? Economics studies how individuals and societies seek to satisfy needs and wants through incentives, choices, and allocation of scarce resources. Economics studies how individuals and societies seek to satisfy needs and wants through incentives, choices, and allocation of scarce resources. Oil & fuel Land Doctors Technology

Factors of Production Economic Resources Economic Resources Natural Resources – raw materials found in nature that are used to produce goods Natural Resources – raw materials found in nature that are used to produce goods Human Resources – people’s knowledge, efforts, and skills used in their work Human Resources – people’s knowledge, efforts, and skills used in their work Capital Resources – used to produce goods and services (buildings, materials, and equipment) Capital Resources – used to produce goods and services (buildings, materials, and equipment) Entrepreneurial Resources - recognize the need for new goods or service Entrepreneurial Resources - recognize the need for new goods or service Scarcity – shortage of resources Scarcity – shortage of resources

Why Economic Systems? Nations use economic systems to determine how to use their limited resources effectively. Nations use economic systems to determine how to use their limited resources effectively. #1 goal of an economic system is to provide people with a minimum : #1 goal of an economic system is to provide people with a minimum : standard of living or quality of life. standard of living or quality of life. Different types of Economic Systems Different types of Economic Systems Traditional Economy Traditional Economy Market Economy (free enterprise) Market Economy (free enterprise) Command Economy Command Economy Mixed Economy Mixed Economy

Traditional Economy Found in rural, Found in rural, under-developed countries Vanuatu Vanuatu Pygmies of Congo Pygmies of Congo Eskimos & Indian tribes Eskimos & Indian tribes Belarus Belarus Customs govern the economic decisions that are made Customs govern the economic decisions that are made Farming, hunting and gathering are done the same way as the generation before Farming, hunting and gathering are done the same way as the generation before Economic activities are centered around the family or ethnic unit Men and women are given different economic roles and tasks Advantages: people have specific roles; security in the way things are done Disadvantages: Technology is not used; difficult to improve

Traditional Economic System An economic system in which decisions are made on the basis of customs, beliefs, religion, habit, and so on. An economic system in which decisions are made on the basis of customs, beliefs, religion, habit, and so on. In traditional societies, scarce goods are often shared evenly, or else on the basis of age and gender. In traditional societies, scarce goods are often shared evenly, or else on the basis of age and gender.

Market Economy (Free Enterprise) Also called a Also called a Free Market Economy or 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.

As supply increases demand decreases/price drops As demand increases supply decreases/price goes up Supply and Demand

Market Economy

Command Economy The government The government (or central authority) determines what, how, and for whom goods and services are produced. (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 Strong Command – where government makes all decisions (communism – China, Cuba, North Korea ) 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

Command Economy An economic system in which the government owns and controls all facets of the economy. An economic system in which the government owns and controls all facets of the economy. Command economies usually satisfy the needs and wants of an elite class which controls the government and decision making. Command economies usually satisfy the needs and wants of an elite class which controls the government and decision making.

Mixed Economy Combination of a market and a command economy Combination of a market and a command economy Government takes of people’s needs Government takes of people’s needs Marketplace takes care of people’s wants. Marketplace takes care of people’s wants. Most nations have a mixed economy: United States, England, Australia Advantage—balance of needs and wants met by government and in marketplace Disadvantage— citizens have to pay taxes

Import Manufactured goods are brought IN for distribution

Export Goods are manufactured and distributed globally (EXIT)

Trade Deficit Deficit Imports - (buying) Imports - (buying) is greater than is greater than Exports -(selling) Exports -(selling) Surplus Exports - (selling) is greater than Imports - (buying)