1. Economic Systems

2. Economic System
The way in which a country handles its economic decisions and solves economic problems
How countries make earning and spending decisions
Each country must establish

3. Four Basic Elements Resources (Factors of Production) Markets
Natural resources (Land)
Human resources (Labor)
Capital goods (Capital)
Entrepreneurship
Markets
Buying and selling goods and services
Market = both buyers and sellers

4. Four Basic Elements Participants Medium of exchange
Producers, consumers, government
Producers create goods/services
Consumers purchase for use
Government makes/enforces laws for system
Medium of exchange
To obtain good/service
Most common is money
Without it, people would have to barter (trade)

5. Need for Economic Systems
No country has enough resources to supply everything
Choices must be made
No way to balance supply and demand
Avoid shortages of some goods and surpluses of others
People are interdependent
Depend on each other to get what they need

6. Types of Economic Systems
Economic systems are divided, but none are a pure system
Contains elements from other systems
Traditional
Command
Communist
Socialist
Market

7. Traditional Economic Systems
Traditions from generations
Habits, customs, and beliefs
Very few new ideas or improvements
Subsistence level
Barely supports life
Consume all they produce
Examples: Asia, Africa, Latin America

8. Command Economic Systems
Government owns and operates many or all means of production and distribution
Key role in planning and decision-making
Consumer decision making limited
Two types:
Communism
Socialism

9. Communism
Means of production and distribution are owned and controlled by the government
Economic planning, decisions, and control of the system
Sets prices, establishes quotas, tell workers where they will work, provides capital for business investment
Example: China

10. Socialism
Government owns part of the means of production and determines how products will be distributed
Private ownership exists
Pay scales set by government
Welfare states
Free medical care, education, welfare, etc.
High taxes
Example: Great Britain

11. Market Economic Systems
Individuals and businesses own or control the means of production and distribution
Government control of business is limited
Workers are motivated to work for profit
Allocation of resources is controlled by market
Activity moves in a continuous circle
Example: United States, Japan

12. Basic Economic Questions
What will be produced?
Must be answered first
Depends on: profit, wants/needs, resources
How will products be produced?
Methods of production, resources, technology, etc.
How will products be allocated?
Seldom possible for everyone to have equal share

13. Problems With Traditional Economies
No growth or progress
Produce only what they need, never save
Vicious cycle
Low incomes, low savings, low capital, low productivity

14. Problems with Communist Command Economies
Delayed economic development because individuals cannot invest
No competition
Inefficient use of resources
Government controls what will be produced and wages paid

15. Problems with Socialist Command Economies
High taxes for individuals and high cost of production
High priced products, reduces national income
Privately owned businesses abide by state’s master plan
Government encourages and discourages types of work
Workers paid according to value of work in eyes of government

16. Problems with Market Economies
Financial loss, government will not assist
Competition is source of some problems
Some products not produced because producers not ensured profit
Heavy influence on some items to produce
Incomes are not equal
Resources in short supply

17. How do the different economies answer the three basic economic questions?
Traditional Economies
Communist Command Economies
Socialist Command Economies
Market Economies