1. Economic Systems
Business Management

2. Today’s Objective
Compare economic systems, free markets, and economic-political systems
3 major economic systems
3 economic-political systems
Consider societal impacts and long- range prospects of each system.

3. Economic Questions
Economic systems are determined based on the three economic questions.

4. The Economic Questions
Each nation must answer these questions when deciding how to use their limited resources.
The way the questions are answered defines the nation’s economic system.
What goods and services should be produced?
How should those goods and services be produced?
For whom should the goods and services be produced?

5. Economic Systems
Economists classify economic systems into three categories:
Market Economies
Command Economies
Mixed Economies

6. MARKET Economies Individuals own the means of production.
There is NO government involvement.
Businesses compete for customers.
It is called a market economy because the market is what drives business.

7. Market Economies
What: consumers decide what will be produced by the purchases they make
How: companies find the most efficient means of production to increase profits
For Whom: the people with purchasing power
WHAT – consumers have purchasing power, the power of the dollar bill. Poor products will not be purchased and those businesses will cease to exist.

8. Think About It…
Are there any pure market economies in the world today?

9. Market Economies Today
Prices would be freely set based entirely on laws of supply & demand
No such thing!
Term used to describe economies largely dictated by market forces
Example: United States (private ownership, free enterprise)

10. COMMAND Economies
All economic decisions are made by the country’s government.
Wealth is shared equally among all to ensure everyone’s basic needs are met.
It is called a command economy because business is driven by government commands. The market has no influence over setting prices.

11. Command Economies
What: one person (usually a dictator) decides what will be produced
How: resources are owned and controlled by the government
For Whom: government decides who will get which products

12. Think About It
Are there any pure command economies in the world today?

13. MIXED Economies
NO economy is purely any one economic system.
Mixed economies have government-operated or government- regulated enterprises combined with individually owned enterprises.
The United States is a mixed economy with strong characteristics of a market economy.
Government has some involvement in business
Government influence is limited by laws and regulations

14. Mixed Economies Capitalism Communism Socialism
Nations today typically follow one of three different economic-political systems.
Capitalism
Communism
Socialism

15. Capitalism Characterized by: Role of Government
Marketplace competition
Private ownership of business
Role of Government
Support the people
Take care of those that cannot care for themselves

16. Characteristics of Capitalism
Private Property
Profit
Price Determination (set your own)
Competition
Distribution of Income

17. Think About It…
Because capitalism is a mixed economy, we have some government- regulated industries.
What are some of our government- regulated industries?
Capitalism is also characterized by private ownership. Businesses are free to compete without government interference.
Think of an example of two businesses that are competitors against each other.

18. Consider the U.S.
The U.S. economy is primarily characterized by capitalism but also has some elements of socialism.
Most decisions are left to private business & consumer choices
The government provides public enterprise, like defense, education, aid for low-income, social security, etc.

19. Communism Characterized by:
TOTAL government control
In theory, this ensures everyone will be equal.
In reality, there is nothing to drive people to better themselves or to work hard.
Examples: North Korea, Cuba, China
Examples: North Korea, Cuba, China

20. Let’s Look at China
China’s economic-political system is frequently referred to as a socialist market economy.
Key industries are government owned.
Prices are allowed to fluctuate based on the market.

21. Socialism
Similar to capitalism, but with greater government involvement
More social services
Higher taxes to pay for gov’t services
Key industries are government-run
Examples: Canada, Germany, Sweden
Social services – ensure a good standard of living
Taxes – help finance government services
Key industries – telecommunications, natural resources, transportation, banking
Examples: Canada, Germany, Sweden

22. Review What are the 3 economic questions?
What are the 3 types of economies?
How is each system characterized?
What are the 3 economic-political systems (mixed economies)?

23. Poster Project!
You will be assigned to a group. Each group will be given a country.
Examine the societal impacts of your country’s economic-political system.
What are the long-range prospects of your country’s system?
How resources are allocated
How much government regulates ownership, taxation, and allocation of goods/services
How marketing decisions are made
Production figures & prosperity forecasts