BUSINESS MANAGEMENT PAVONE 3-2 ECONOMIC SYSTEMS. INTRODUCTION Remember that no country has enough resources to satisfy all the wants of all people for.

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Presentation transcript:

BUSINESS MANAGEMENT PAVONE 3-2 ECONOMIC SYSTEMS

INTRODUCTION Remember that no country has enough resources to satisfy all the wants of all people for material goods and services. Because productive resources are scarce, difficult decisions must be made about how to use these limited resources. For example, somehow countries must decide whether to produce more capital goods and fewer consumer goods or more consumer goods and fewer capital goods.

ECONOMIC SYSTEMS Economic System – is an organized way for a country to decide how to use its productive resources; that is, to decide what, how and for whom goods and services will be produced. There are three basic economic systems: Market Economy Command Economy Mixed Economy

TYPES OF ECONOMIC SYSTEMS Market Economy – an economic system in which individual buying decisions in the marketplace together determine what, how, and for whom goods and services will be produced (example: United States free enterprise system). Command Economy – an economic system in which a central planning authority, under the control of the country’s government, owns most of the factors of production and determine what, how, and for whom goods and services will be produced (example: North Korea, Cambodia, Vietnam). Mixed Economy – an economic system that uses aspects of a market and command economy to make decisions about what, how, and for whom goods and services will be produced. Privatization – the transfer of authority to provide a good or service from a government to individuals or privately owned businesses.

TYPES OF ECONOMIC-POLITICAL SYSTEMS Each country has an economic and a political system. The political system nearly always determines the economic system. The three types of political systems are: Capitalism Socialism Communism

CAPITALISM Capitalism – an economic-political system in which private citizens are free to go into business for themselves, to produce whatever they choose to produce, and to distribute what they produce. Capitalism is the economic-political system in the United States. Capitalism is also known as the free-enterprise system. In recent years in the United States, the government has had to intervene and assume economic role in order to stop abuses that came as a result of the free-enterprise system.

SOCIALISM Socialism – an economic-political system in which the government controls the use of the country’s factors of production. Socialists do not agree as to how much of the productive resources government should own; as a result, socialism is most commonly associated with mixed economics. Socialism is generally disliked in the United States because of its limits to the right of the individual to own property for productive purposes. Socialism exists in different forms, particularly in Western European countries, like Sweden and France.

COMMUNISM Communism – extreme socialism, in which all or almost all of a nation’s factors of production are owned by the government. Government measures of production are based on volume, not much regarding quality or demand of product or service. Command economy is most associated with communism. Consumer goods are usually in short supply in communist countries due to government channeling large proportion of factors of production toward capital formation. Communist countries such as China realize the shortfalls. Workers in communist countries cannot easily change jobs and people do not own property; all economic decisions are made by the government.