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Economic SystemsEconomic Systems
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What is Economics?What is Economics?
Economics studies how individuals andEconomics studies how individuals andsocieties seek to satisfy needs andsocieties seek to satisfy needs and
wants through incentives, choices, andwants through incentives, choices, andallocation of scarce resources.allocation of scarce resources.
Oil & fuelLand
Doctors
Technology
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Factors of ProductionFactors of Production
Economic ResourcesEconomic Resources Natural ResourcesNatural Resources raw materials found inraw materials found in
nature that are used to produce goodsnature that are used to produce goods
Human ResourcesHuman Resources peoples knowledge, efforts,peoples knowledge, efforts,and skills used in their workand skills used in their work
Capital ResourcesCapital Resources used to produce goods andused to produce goods andservices (buildings, materials, and equipment)services (buildings, materials, and equipment)
Entrepreneurial ResourcesEntrepreneurial Resources -- recognize the needrecognize the needfor new goods or servicefor new goods or service
ScarcityScarcity shortage of resourcesshortage of resources
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Why Economic Systems?Why Economic Systems? Nations use economic systems toNations use economic systems to
determine how to use their limiteddetermine how to use their limitedresources effectively.resources effectively.
Primary goal of an economic system is toPrimary goal of an economic system is toprovide people with a minimum standardprovide people with a minimum standardof living, or quality of life.of living, or quality of life.
Different types of Economic SystemsDifferent types of Economic SystemsTraditional EconomyTraditional Economy
Market Economy (free enterprise)Market Economy (free enterprise)
Command EconomyCommand Economy
Mixed EconomyMixed Economy
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Traditional EconomyTraditional Economy Found in rural, underFound in rural, under--
developed countriesdeveloped countries VanuatuVanuatu
Pygmies of CongoPygmies of Congo
Eskimos & Indian tribesEskimos & Indian tribes
BelarusBelarus
Customs govern theCustoms govern theeconomic decisionseconomic decisions
that are madethat are made Farming, hunting andFarming, hunting and
gathering are done thegathering are done thesame way as thesame way as the
generation beforegeneration before
Economic activities areEconomic activities are
centered around thecentered around thefamily or ethnic unitfamily or ethnic unit
Men and women areMen and women are
given different economicgiven different economicroles and tasksroles and tasks
AdvantagesAdvantages: people: peoplehave specific roles;have specific roles;
security in the waysecurity in the waythings are donethings are done
DisadvantagesDisadvantages::Technology is not used;Technology is not used;
difficult to improvedifficult to improve
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Market Economy (Free Enterprise)Market Economy (Free Enterprise)
Also called aAlso called a Free MarketFree MarketEconomy or FreeEconomy or FreeEnterprise EconomyEnterprise Economy
Businesses andBusinesses and
consumers decide whatconsumers decide whatthey will produce andthey will produce andpurchase and in whatpurchase and in whatquantitiesquantities
Decisions are madeDecisions are madeaccording toaccording to law oflaw ofsupply & demandsupply & demand
Supply and demand ofSupply and demand ofgoods and servicesgoods and servicesdetermine what isdetermine what isproduced and the priceproduced and the price
that will be chargedthat will be charged.. AdvantageAdvantagecompetitioncompetition
to have the best productsto have the best productsand servicesand services
DisadvantageDisadvantagehuge rifthuge riftbetween wealthy andbetween wealthy andpoorpoor
Note: aNote: a true markettrue market
economyeconomy does not exist.does not exist.
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Command EconomyCommand Economy
The government (orThe government (orcentral authority)central authority)determines what, how,determines what, how,and for whom goods andand for whom goods andservices are produced.services are produced.
Two types:Two types: Strong CommandStrong Command wherewhere
government makes allgovernment makes alldecisions (communismdecisions (communism China, CubaChina, Cuba))
Moderate CommandModerate Command where some form ofwhere some form ofprivate enterprise existsprivate enterprise existsbut the state owns majorbut the state owns majorresources (socialismresources (socialism France and SwedenFrance and Sweden))
AdvantagesAdvantages Guarantees equalGuarantees equalstandard of living forstandard of living foreveryoneeveryone
Less crime and povertyLess crime and poverty
Needs are provided forNeeds are provided forthrough the governmentthrough the government
DisadvantagesDisadvantages Minimal choicesMinimal choices Fewer choices of itemsFewer choices of items
No incentive to produceNo incentive to producebetter product or engagebetter product or engagein entrepreneurshipin entrepreneurship
Also known as aAlso known as a PlannedPlannedor Managed Economyor Managed Economy
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Mixed EconomyMixed Economy Combination of aCombination of a
market and amarket and acommandcommand
economyeconomy Government takesGovernment takes
of peoples needsof peoples needs
Marketplace takesMarketplace takescare of peoplescare of peopleswants.wants.
Most nations have aMost nations have amixed economy:mixed economy:United States,United States,England, AustraliaEngland, Australia
AdvantageAdvantagebalancebalanceof needs and wantsof needs and wantsmet by governmentmet by government
and in marketplaceand in marketplace DisadvantageDisadvantage
citizens have to paycitizens have to paytaxestaxes
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SocialismSocialism
Non-Antagonistic
Productive Forces Production Relations Ownership of the
Means of Production
Labour:
Human abilityand skill specialization
Means ofLabour:
Sophisticated and
advanced techniques
of production,
Industrial Plants,equipment, tools
Objects ofLabour:
Land
Economic Planning
Complex Division ofLabour
Commodity
Production
Close
interdependence Mutual Cooperation
Absence of Self
Interest
Social Welfare
Social ownership ofthe means of
production
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Classification ofModes ofClassification ofModes of
ProductionProduction1.1. AntagonisticAntagonistic: Ownership of the means of production: Ownership of the means of production
is separated by those who work on them.is separated by those who work on them.Differentiation between haves and haveDifferentiation between haves and have--notsnotsExamples are:Examples are: Slavery, Feudalism, Capitalism.Slavery, Feudalism, Capitalism.
2.2. Non AntagonisticNon Antagonistic: Ownership of the means of: Ownership of the means ofproduction is not separated by those who work onproduction is not separated by those who work onthem. There is no conflict between those who work onthem. There is no conflict between those who work onthem and who owns the means of production.them and who owns the means of production.Examples are:Examples are: Primitive Community, SocialismPrimitive Community, Socialism
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Classification of EconomicClassification of Economic
SystemsSystemsOwnership Pattern
DecisionPattern
Predominantly Private Predominantly Public
Predominantly
decentralized with the use
of market principle
Capitalist Laiseez Faire
Economy
SocialisticMixed Economy
Predominantly centralized
with the use of command
principle
CapitalistMixed Economy Socialist Economy
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Role of Business Enterprises underRole of Business Enterprises under
different Economic Systemdifferent Economic System
Private and Public enterprises (PPPs)Private and Public enterprises (PPPs)
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