1. Economic Systems

2. Essential Questions What are the 4 factors of production? What are 3 basic economic questions all societies must answer? What are the basic economic systems that exist in world today? What are the differences between these economic systems?

3. Factors of Production scarcity Because of the problem of scarcity, every nation must decide how to allocate limited resources 4 Factors of Production There are 4 Factors of Production : C apital - financial resources ( money ) needed to purchase other capital goods E ntrepreneurship- the ability to complete the managerial functions of gathering, allocating & distributing economic resources or consumer goods L and - includes timber, fisheries, rivers, farms and other natural resources on the land necessary to produce L abor- human capital available to transform raw or national resources into consumer goods

4. How Does An Economy Work? Societies must answer 3 basic Economic questions: What goods and services should be produced? How should the goods and services be produced? For whom should the goods and services be produced? The way a society answers these questions defines their economic system.

5. Types of Economic Systems All economic systems fall into one of three broad categories: Traditional (or primitive) System Market (or Capitalist) System Command (or Planned) System No economy can be purely market or purely command Mixed Elements of both market & command are found in all systems- this makes most economies Mixed

6. Traditional Economy original economic system in which traditions, customs & beliefs shape the goods and products the society creates What to produce? How to produce it? and For Whom it should be produced? Are all decided by customs & traditions of past generations Examples of Traditional economies would be the Inuit (Eskimo) in Alaska and Australian aborigines

7. Traditional Economies Traditional Economies are typically: found in underdeveloped areas of the world are in rural or isolated areas allow very little modern technology usually based on subsistence agriculture or hunting and gathering uses bartering & trade rather than currency most activities centered around family almost no surplus is produced

8. A Pure Market Economy No government involvement in economic decisions The consumers & producers answer the three basic economic questions What? Customers decide through their purchases How? This is left up to the individual business –BUT- a business must be profitable Who? People who have money can buy more – this encourages hard work and investments

9. A Pure Command Economy The Government controls the factors of production and makes all the decisions The government is responsible for answering the three economic questions What? One person ( a dictator) or a group of government officials (central planning committee) decide what is to be produced How? The government owns all the factors of production and makes all the decisions about production Who? The government decides who receives what is produced in the economy

10. Mixed Economies Some government involvement through mandatory laws and regulations that businesses follow Labor Laws, Minimum Wage, OSHA codes The government provides social programs for those who need help Medicare, welfare, Obamacare All economies are mixed they are classified based on how much the government is involved in the process

11. Continuum of Economic Systems Command Economy Communism On the far left Market Economy Capitalism On the far right Socialism Left of center but right of communism

12. Capitalism An economic system characterized by private ownership of businesses and marketplace competition The government is concerned about its people and takes care of those who cannot care for themselves The political system is a democracy with leaders elected by the people The United States and Japan are examples of a Capitalist Economy

13. Socialism Increased government involvement in people’s lives and the economy The main goal is to keep prices low for all people and to provide employment for many The government runs key industries and makes economic decisions More social services for all and free or low cost medical care Canada, Germany, Sweden, Australia and Great Britain are all examples of socialist economies

14. Communism The government runs everything (Totalitarian government) Only one political party, runs the government All people able to work are assigned jobs – there is virtually no unemployment The government assigns housing, schools, and occupations There is little to no economic freedom (no choices) Cuba, North Korea, and China are examples

15. Mixed Economies The are almost no purely market or purely command economies today The United States has a mixed economy Democratic political process and a capitalist economy, but with some gov’t interference China is also a mixed economy Communist political process and a socialist economy, but allowing more free enterprise & consumer choices

16. REVIEW ASSESSMENT 1) List and describe each of the 4 factors of production. (write out complete question, not just one word) 2) What are the 3 basic economic questions every society answers? (write out complete question, not just one word) 3) What are the 4 specific types of economic systems that exist in the world today? 4) Describe each of these 4 economic systems. 5) What are the 3 different types of business organizations in the US?