Economic Systems Definition Four functions Functions Fulfilled Types of Systems

Definition The way in which a nation deals with the economic problem. It is a system that is established in order to allocate and distribute resources for production in order to meet needs. The way in which a nation deals with the economic problem. It is a system that is established in order to allocate and distribute resources for production in order to meet needs.

Four functions What to produce? What to produce? How to produce? How to produce? How much to produce? How much to produce? For whom to produce? For whom to produce?

Functions Fulfilled Price mechanism Price mechanism Government decision Government decision Mixture of both Mixture of both Tradition or customs Tradition or customs

Four types of Economic Systems Market or unplanned economy Market or unplanned economy Command or planned economy Command or planned economy Mixed or semi-planned economy Mixed or semi-planned economy Subsistence economy Subsistence economy

Think Why do we need an economic system? Why do we need an economic system?

Unplanned/Market Economy All economic decisions are made by private individuals or groups. All economic decisions are made by private individuals or groups. No government involvement. No government involvement. All property is privately owned, resource allocation and production is totally determined by price. All property is privately owned, resource allocation and production is totally determined by price. Profit is the motive behind all economic activity. Profit is the motive behind all economic activity.

Planned/Command Economy All decisions are made by a central planning authority (government). All decisions are made by a central planning authority (government). No private sector. No private sector. All property is owned by the government and decisions are not price or profit motivated. All property is owned by the government and decisions are not price or profit motivated.

Mixed/Semi-planned Economy Mixture of both government and private economic activity. Actual mix will vary from country to country. Mixture of both government and private economic activity. Actual mix will vary from country to country. In the real world, all economies are of this type. In the real world, all economies are of this type.

Subsistence Economy All decisions are made at a tribal level. All decisions are made at a tribal level. No commercial activity. No commercial activity. Self-sufficiency is promoted. Self-sufficiency is promoted. Basic human needs are met, methods of production are simple and labour intensive. Basic human needs are met, methods of production are simple and labour intensive. Custom/culture is a major factor in economic decision making and property ownership. Custom/culture is a major factor in economic decision making and property ownership.

Activity Write a paragraph describing how a planned economy and a market economy differ.

Activity: Categorising Countries Draw a diagram that illustrates two dimensions of economic organisation and development. The horizontal dimension is the degree of government involvement. The vertical dimension concerns the level of technological advancement. Draw a diagram that illustrates two dimensions of economic organisation and development. The horizontal dimension is the degree of government involvement. The vertical dimension concerns the level of technological advancement. Locate the following countries on the diagram in terms of where they would best fit. Locate the following countries on the diagram in terms of where they would best fit. USA; Japan; Germany; Sweden; Britain; Australia; Greece; India; China; Cuba; N. Korea and Uganda