ECONOMIC SYSTEMS

Introduction to BusinessLesson 1-3

Key Economic Questions

What goods and services are to be produced?

How should the goods and services be produced?

What needs and wants will be satisfied with the goods and services produced?

Economic Systems

Traditional (Custom-Based) Economy

Command Economy Market Economy

Traditional (Custom-Based) Economy Goods are produced the way they

have always been produced. Change and growth occur slowly in

countries where economies follow customs, and people are poor in material goods

Command Economy Resources are owned and controlled by

the government Officials of the government (central

committee) decide what and how goods will be produced and how they will be shared.

Market Economy The three questions are answered

by individuals through buying and selling activities in the marketplace.

Consumers and businesses make economic decisions based on their own interest.

Marketplace is any place where buyers and sellers exchange goods, services, and some form of money

Our Economic System

Capitalism – economic resources are usually privately owned by individuals rather than by the government

This freedom of the individual to choose what to produce provides the rationale for another name:

free enterprise or private enterprise system

Capitalism, free enterprise, private enterprise refer to a system in which most economic resources are privately owned and decisions about production and distribution are largely made by voluntary exchange in the marketplace

Features of US Market Economy

Private Property Profit Competition Freedom of Choice

Business – an establishment or enterprise that supplies us with goods and services in exchange for payment of some form.

Private Property – The right to own, use, or dispose of things of value – sell, trade, give away, or throw away.

Businesses also have the right to own property.

Profit – The money left from sales after subtracting all the costs of operating the business.

Businesses supply goods and services to the marketplace for one main reason – profit.

Profit motive – the desire to work hard and be creative to earn a higher profit

Competition – The rivalry among businesses to sell their goods and services to buyers.

Competition encourages owners to improve products, offer better services, keep prices reasonable, and produce new things.

Freedom of Choice – Consumers have the right to:

enter business or career of choice, own property, make a profit, compete

Other Rights include Right of workers to organize with

other workers Right to travel when and where you

please in this country and abroad Right to express opinions as long as

you do not slander another person

Mixed Economic Systems

Most countries are thought to have mixed economic systems.

In U.S., there is some government regulation of business.

There are some government-operated enterprises.

Emerging Market Economies

Command economies are not designed to meet the wants and needs of individuals. In most controlled economies, workers with different skills and responsibilities receive similar wages – little incentive for people to work hard.

Many controlled economies have changed.

USSR (Soviet Union) is now Russia.

Other countries are moving toward market economies.

The End