Overview of economic systems

2.01 Economic SystemsObjective 2.01 Compare different types of economic systems: traditional, free enterprise, command and mixed... What is Economics? Economics studies how individua

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

Oil & fuel

Land

Doctors Technology

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-developed countries–

 Customs govern the

economic decisions that

are made

 Farming, hunting and

gathering are done the

same way as the

 Economic activities are centered around the family or ethnic unit

 Men and women are given different economic roles and tasks

 Advantages: people have specific roles;

security in the way things are done

 Disadvantages:

Technology is not used;

Market Economy (Free Enterprise)

 Also called a Free Market

Economy or Free

Enterprise Economy

 Businesses and

consumers decide what

they will produce and

purchase and in what

quantities

 Decisions are made

according to law of supply

& demand

 Supply and demand of goods and services

determine what is produced and the price that will be charged.

 Advantage—competition

to have the best products and services

 Disadvantage—huge rift between wealthy and poor

 Note: a true market economy does not exist.

Command Economy

central authority)

determines what, how,

and for whom goods and

services are produced

government makes all

decisions (communism –

China, Cuba)

where some form of

private enterprise exists

but the state owns major

resources (socialism –

 Advantages

standard of living for everyone

through the government

 Disadvantages

better product or engage

in entrepreneurship

 Also known as a Planned

Mixed Economy

market and a

command

economy

of people’s needs

care of people’s

wants.

mixed economy:

United States, England, Australia

 Advantage—balance

of needs and wants met by government and in marketplace

 Disadvantage—

citizens have to pay taxes