This document discusses various economic systems, including traditional, market (free enterprise), command, and mixed economies. It outlines key concepts in economics, such as factors of production, scarcity, and the roles of government and markets in resource allocation. The text highlights the advantages and disadvantages of each economic system, emphasizing the importance of these systems in determining the standard of living and quality of life.

1. 2.01 Economic Systems
2.01 Economic Systems
Objective 2.01 Compare
Objective 2.01 Compare
different types of economic
different types of economic
systems: traditional, free
systems: traditional, free
enterprise, command and
enterprise, command and
mixed.
mixed.

2. What is Economics?
What is Economics?
 Economics studies how individuals
Economics studies how individuals
and societies seek to satisfy needs
and societies seek to satisfy needs
and wants through incentives,
and wants through incentives,
choices, and allocation of scarce
choices, and allocation of scarce
resources.
resources.
Oil & fuel
Land
Doctors
Technology

3. Factors of Production
Factors of Production
 Economic Resources
Economic Resources
 Natural Resources
Natural Resources – raw materials found in
– raw materials found in
nature that are used to produce goods
nature that are used to produce goods
 Human Resources
Human Resources – people’s knowledge,
– people’s knowledge,
efforts, and skills used in their work
efforts, and skills used in their work
 Capital Resources
Capital Resources – used to produce goods
– used to produce goods
and services (buildings, materials, and
and services (buildings, materials, and
equipment)
equipment)
 Entrepreneurial Resources
Entrepreneurial Resources - recognize the
- recognize the
need for new goods or service
need for new goods or service
 Scarcity – shortage of resources
Scarcity – shortage of resources

4. Why Economic Systems?
Why Economic Systems?
 Nations use economic systems to
Nations use economic systems to
determine how to use their limited
determine how to use their limited
resources effectively.
resources effectively.
 Primary goal of an economic system is
Primary goal of an economic system is
to provide people with a minimum
to provide people with a minimum
standard of living, or quality of life.
standard of living, or quality of life.
 Different types of Economic Systems
Different types of Economic Systems
 Traditional Economy
Traditional Economy
 Market Economy (free enterprise)
Market Economy (free enterprise)
 Command Economy
Command Economy
 Mixed Economy
Mixed Economy

5. Traditional Economy
Traditional Economy
 Found in rural, under-
Found in rural, under-
developed countries–
developed countries–
 Vanuatu
Vanuatu
 Pygmies of Congo
Pygmies of Congo
 Eskimos & Indian tribes
Eskimos & Indian tribes
 Belarus
Belarus
 Customs govern the
Customs govern the
economic decisions
economic decisions
that are made
that are made
 Farming, hunting and
Farming, hunting and
gathering are done the
gathering are done the
same way as the
same way as the
generation before
generation before
 Economic activities are
Economic activities are
centered around the
centered around the
family or ethnic unit
family or ethnic unit
 Men and women are
Men and women are
given different economic
given different economic
roles and tasks
roles and tasks
 Advantages
Advantages: people
: people
have specific roles;
have specific roles;
security in the way
security in the way
things are done
things are done
 Disadvantages
Disadvantages:
:
Technology is not used;
Technology is not used;
difficult to improve
difficult to improve

6. Market Economy (Free Enterprise)
Market Economy (Free Enterprise)
 Also called a
Also called a Free Market
Free Market
Economy or Free
Economy or Free
Enterprise Economy
Enterprise Economy
 Businesses and
Businesses and
consumers decide what
consumers decide what
they will produce and
they will produce and
purchase and in what
purchase and in what
quantities
quantities
 Decisions are made
Decisions are made
according to
according to law of
law of
supply & demand
supply & demand
 Supply and demand of
Supply and demand of
goods and services
goods and services
determine what is
determine what is
produced and the price
produced and the price
that will be charged
that will be charged.
.
 Advantage
Advantage—competition
—competition
to have the best
to have the best
products and services
products and services
 Disadvantage
Disadvantage—huge rift
—huge rift
between wealthy and
between wealthy and
poor
poor
 Note: a
Note: a true market
true market
economy
economy does not exist.
does not exist.

7. Command Economy
Command Economy
 The government (or
The government (or
central authority)
central authority)
determines what, how,
determines what, how,
and for whom goods and
and for whom goods and
services are produced.
services are produced.
 Two types:
Two types:
 Strong Command –
Strong Command –
where government
where government
makes all decisions
makes all decisions
(communism –
(communism – China,
China,
Cuba
Cuba)
)
 Moderate Command –
Moderate Command –
where some form of
where some form of
private enterprise exists
private enterprise exists
but the state owns major
but the state owns major
resources (socialism –
resources (socialism –
France and Sweden
France and Sweden)
)
 Advantages
Advantages
 Guarantees equal
Guarantees equal
standard of living for
standard of living for
everyone
everyone
 Less crime and poverty
Less crime and poverty
 Needs are provided for
Needs are provided for
through the government
through the government
 Disadvantages
Disadvantages
 Minimal choices
Minimal choices
 Fewer choices of items
Fewer choices of items
 No incentive to produce
No incentive to produce
better product or engage
better product or engage
in entrepreneurship
in entrepreneurship
 Also known as a
Also known as a Planned
Planned
or Managed Economy
or Managed Economy

8. Mixed Economy
Mixed Economy
 Combination of a
Combination of a
market and a
market and a
command
command
economy
economy
 Government takes
Government takes
of people’s needs
of people’s needs
 Marketplace takes
Marketplace takes
care of people’s
care of people’s
wants.
wants.
 Most nations have a
Most nations have a
mixed economy:
mixed economy:
United States,
United States,
England, Australia
England, Australia
 Advantage
Advantage—balance
—balance
of needs and wants
of needs and wants
met by government
met by government
and in marketplace
and in marketplace
 Disadvantage
Disadvantage—
—
citizens have to pay
citizens have to pay
taxes
taxes