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2 The Economic Systems
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2 The Economic Systems

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  • 1. The Economic Systems Objective: To cover the four types of economic systems
  • 2. What is an Economic System?
    • A way in which a nation uses its resources to satisfy its people’s needs and wants
  • 3. Three Basic Questions of Economics
    • Nations like people have to make choices about what to produce
    • They must answer three questions
    • What goods and services should be produced
    • How should these goods and services be produced
    • Who will get the goods and services
  • 4. Traditional System
    • Is based on what was done in the past
    • Very primitive and simple
    • Everyone shares equally in goods and services
    • Advantage is strong family ties
    • Disadvantage change is discouraged
  • 5. Command Economy
    • Government decides what is best for the people
    • Government controls land, labor, capital
    • Government decides who will work, where they will work, and what will be made
    • Finally government decides who will receive the goods and services
  • 6. Command Economy
    • Advantage- is speed in which resources can be rerouted
    • Disadvantage- a lack of incentive to work harder, a lack of consumer choice, and a lack of efficiency
  • 7. Market Economy
    • Is the opposite of a command economy
    • Each person answers the three basic questions for themselves
    • The most important part is that goods and services are bought and sold freely
    • The advantages are many, people have freedom, competition ensures there will be a variety of goods available at low prices
    • Disadvantage tends to over look the needs of very needy people
  • 8. Mixed Economy
    • Most nations today have a mixed economy
    • A mixed economy is one that is part command and part market economy
    • U.S.A. has a mixed economy
  • 9. Capitalism
    • Is when the factors of production is mostly owned by the people and
    • Laissez-faire: “means let people do what they choose”
    • Government has no role in business or very limited control
  • 10. Adam Smith
    • Lived in Scotland over 200 years ago
    • Study market economies and wrote a book called “Wealth of Nations”
    • Smith believed people made decisions based on self interest
    • Self interest is the invisible hand that controls market economies
  • 11. Market Economies
    • Freedom of Enterprise means people are free to own the factors of production
    • Freedom of Choice means buyers and sellers make decisions about what should be produced
    • Profit means you make money for yourself
    • Private property is an important incentive to motivate people to work
    • Competition (is a key factor) leads to an efficient use of resources and lower prices