2.01 Economic Systems

OBJECTIVE 2.01 COMPARE DIFFERENT TYPES OF ECONOMIC SYSTEMS: TRADITIONAL, FREE ENTERPRISE, COMMAND AND MIXED. What is Economics?

 Economics studies how individuals and societies seek to satisfy needs and wants through incentives, choices, and allocation of scarce resources.

Technology Land Oil & fuel

Doctors Factors of Production

 Economic Resources  Natural Resources – raw materials found in nature that are used to produce goods  Human Resources – people’s knowledge, efforts, and skills used in their work  Capital Resources – used to produce goods and services (buildings, materials, and equipment)  Entrepreneurial Resources - recognize the need for new goods or service  Scarcity – shortage of resources Why Economic Systems?

 Nations use economic systems to determine how to use their limited resources effectively.  Primary goal of an economic system is to provide people with a minimum standard of living, or quality of life.  Different types of Economic Systems Traditional Economy Market Economy (free enterprise) Command Economy Mixed Economy Traditional Economy

 Found in rural, under-  Economic activities are developed countries– centered around the family  Vanuatu or ethnic unit  Pygmies of Congo  Men and women are given  Eskimos & Indian tribes different economic roles and  Belarus tasks  Customs govern the  Advantages: people have economic decisions that specific roles; security in the are made way things are done  Farming, hunting and  Disadvantages: Technology gathering are done the is not used; difficult to same way as the improve generation before Market Economy (Free Enterprise)

 Also called a Free Market  Supply and demand of Economy or Free goods and services Enterprise Economy determine what is produced and the price  Businesses and consumers decide what they will that will be charged. produce and purchase and  Advantage—competition in what quantities to have the best products  Decisions are made and services according to law of supply  Disadvantage—huge rift & demand between wealthy and poor  Note: a true market economy does not exist. Command Economy

 The government (or  Advantages central authority)  Guarantees equal standard of determines what, how, living for everyone and for whom goods and  Less crime and poverty services are produced.  Needs are provided for through the government  Two types:  Disadvantages  Strong Command – where government makes all  Minimal choices decisions (communism –  Fewer choices of items China, Cuba)  No incentive to produce  Moderate Command – where better product or engage in some form of private entrepreneurship enterprise exists but the state owns major resources  Also known as a Planned (socialism – France and or Managed Economy Sweden) Mixed Economy

 Combination of a  Most nations have a market and a mixed economy: United States, command England, Australia economy  Advantage—balance  Government takes of needs and wants of people’s needs met by government and in marketplace  Marketplace takes care of people’s  Disadvantage— citizens have to pay wants. taxes