1. PRODUCTIVITY *
Productivity – efficient use of resources (using your resources well)
Productivity goes up when
more output (goods) can be made with same amount of inputs (resources), or
if same output (goods) can be produced with fewer inputs (resources).

2. SPECIALIZATION *
Specialization – productive inputs (mainly people) do whatever task they are able to do best.
Good way to increase productivity.
Division of labor
Assembly Line

3. HUMAN CAPITAL *
Human capital –skills, abilities, health, and motivation of people.
Can be increased; ex – education, training
Don’t get confused!!!!!
Capital – tools and equipment
Human Capital- when people are the tools

4. Three Questions asked by all Economic Systems
What to produce?
How to produce?
For whom to produce?

5. Traditional Command (aka centrally planned) Market
The 3 Economic Systems
Traditional Command (aka centrally planned) Market

6. 3 Economic Systems
TRADITIONAL ECONOMY: nearly all economic activity is determined by ritual, habit, or custom.
*Roles defined by customs of ancestors.
*Skills passed from generation to generation.

9. 3 Economic Systems
2. COMMAND ECONOMY: a central authority decides WHAT is produced, HOW it is produced, and FOR WHO. *Economic decisions are made at the top & people are expected to follow *resource usage and production quotas are pre-determined

11. 3 Economic Systems
3. MARKET ECONOMY: people and firms (companies) act in their own best interests to decide WHAT, HOW & FOR WHOM *In a M.E. people cast “dollar votes” when they buy products. This determines WHAT is produced.

13. Your Assignment Systems Who determines WHAT to Produce?
Who determines HOW to produce?
Who determines FOR WHOM to produce?
Strengths
Weaknesses
Market
Command
Traditional
Created by J. Petty / Phinizy