ECONOMIC SYSTEMS

All economic system is the way a nation determines how

to use its resources to satisfy its people’s needs and wants.

3 Basic Questions all economic systems face: What should be produced?Cars or trucks? Jeans or shoes?

How should it be produced?How many workers needed? What kind of

technology?

For whom should it be produced?Who gets the new cars? Who lives in the new

apartment?

Types of Economic Systems

Traditional- The oldest and simplest of all economies. It relies on habit, custom or ritual. It revolves around the family unit. People do things the way they have always been done. Parents often teach their children their trade.

This is common in limited parts of the world like the aborigines of Australia or the people of Peru.

Chocolate

Making

Guinea Pig raising

Weaving

Alpaca Farming

Command or Centrally Planned economy- government leaders control the factors of production and make all the decisions.

Examples- China and North Korea

Characteristics of a pure command economy

Most prices are set by the government Labor is strictly controlled Most factors of production are owned by

the governmentl Individual risk taking is not allowed All economic decisions are made by the

government. Taxation is often used to redistribute

income.

Free Market System or Pure Capitalism- decisions are made by individuals without government interference. (laissez-faire- French term meaning “Let people do as they choose”)

Mixed System- combines pure market economy and a command economy. Most countries have this kind of economy.

Individuals make decisions with government intervention and regulations.

Governments regulate food and drugs, banks, inspect workplaces for dangers and protect the environment just to name a few things.

Free-Enterprise

Individuals are free to own and control factors of production.

You could succeed and become wealthy You could fail and become bankrupt. Most businesses have government regulations. Buyers are also free to choose which products

they buy. Producers spend large amounts to made sure that customers know name and logos of their products.

( 2 year olds often recognize labels and brands)

Brands and Logos

Brands and Logos

5 Goals of Free Enterprise

FreedomEach member of society are allowed to make choices.(own your own business, work part-time, etc) EquityFairness in dealing with equal pay, accidents on the job,

fairness in hiring practices SecurityWe want to know we can buy milk, get our paychecks,

etc. We want protection against risks beyond our control- accidents on the job, natural disasters, poverty and old age. (Social Security, unemployment benefits, etc)

StabilityHelps reduce extreme ups and downs in

the standard of living GrowthExpansion of the economy to produce

more good, jobs and wealth

Profit Incentive

The amount left after all the costs of production have been paid.

The desire to make a profit is profit incentive.

ExampleYou buy a case of candy bars at Sams for

$32.69. The case has 60 candy bars and you sell each candy bar for $1.00. How much profit did you make on one case.

Competition

Rivalry among producers of similar products

(AT&T and Verizon) (Coke & Pepsi) keeps down prices. If a group has a monopoly they can

charge whatever price they want. Businesses have to keep prices low

enough to attract buyers, yet high enough to make a profit.

Private Property

Property that is owned by individuals or groups rather than by the government.

No level of government in the United States can seize or use private property, at least not without paying the owners.

Eminent Domain- government can seize property for economic development, but they must pay you for the property