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 .