Chapter 2
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1 UNIVERSITY OF SANTO TOMAS FACULTY OF ARTS AND LETTERS St. Raymund de Peñafort Bldg. España Manila, Philippines Chapter 2 The Economic System
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Economic System
Transcript of Chapter 2
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UNIVERSITY OF SANTO TOMASFACULTY OF ARTS AND LETTERSSt. Raymund de Peñafort Bldg.España Manila, Philippines
Chapter 2
The Economic System
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Chapter 2
Economic System
Economic System
- refers to a set of economic institutions that dominate a given economy with the main objective of solving the basic economic problems.
- A system of resource allocation and resource ownership.
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Factors of Production
- These are resources used to produce goods and services.
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4 Factors of Production
1.Land
- The physical space on which production occurs, together with the natural resources found beneath it.
2.Labor
- The time human beings spend producing goods and services.
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Four (4) Factors of Production
3.Capital
- Long-lasting tools used in producing goods and services. 4.Entrepreneurship
- it means that people are combining the other three factors of production to create some products or services to sell.
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Four (4) distinct characteristics of entrepreneurs:
1.Have the competence to organize factors of production.
2.Know how to make business decisions.
3.Risk takers.
4.Innovators
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The Three Basic Economic Problems
1.What goods or services should be produced and in what quantities?
2. How these goods and services should be produced?
3.For whom should these goods and services be produced?
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Four Types of Economic System
1.Traditional System
- All three (3) problems are solved in somewhat that same way as families solve similar problems. Economic decisions are made with the great influence from the past.
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The essential characteristics of a Traditional Economy:
1.Communal land ownership;
2.The leader decides on the management of agricultural production which is the basis of the economy;
3.The production, distribution, and use of economic resources are based on traditional practices;
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The essential characteristics of a Traditional system:
4. New technologies are not welcome since they are in contrast with the traditional practices of their ancestors.
5. The economy is only its third priority while the culture and religion are its foremost priorities; and
6.Mines are used to gather raw materials for production.
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Four Types of Economic System
2. Command Economy
- An economic system wherein the factors of production and distribution are owned and managed/allocated by the state.
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The essential characteristics of a Command system:
1.Resource allocation is done by government;
2.Presence of central planning of all economic activities;
3.There is no free competition (the government is the only seller);
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The essential characteristics of a Command system:
4.Only the government plays the role in setting legal framework for economic life production and distribution of goods and services; and
5.The products or needs of the people are distributed based on priorities set by the committee.
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Four Types of Economic System
3. Market Economy
- An economic system wherein individual consumers and businesses interact to solve the basic economic problems.
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The essential characteristics of a Market Economy:
1.The private sector owns and manages the means of production;
2.The price system in a market structure applies to determine how much will be paid for a certain commodity or services;
3.It is also known as laissez-faire or free enterprise.
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The essential characteristics of a Market Economy:
4.There is a minimum government interference on decisions pertaining to the management of the economy.
5.Existence of competition often results to monopoly; and
6.There is the presence of economic power.
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Four Types of Economic System
4. Mixed Economy
- An economic system wherein the economy has an elements of traditional, command, and free market is present in varying degrees.
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The essential characteristics of a Mixed Economy:
1.The means of production are owned and controlled by the private sector as well as the government;
2.The people decide on economic activities within the economy;
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The essential characteristics of a Mixed Economy:3.The combinations of the best features of capitalist and command economies are observable in the market; and
4.The problem of distribution of goods and services and allocation of economic resources are determined through a combination of the market system and governmental laws and policies.
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“If you can’t explain it simply, you don’t understand it well
enough.”
- Albert Einstein
End of
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