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IBT Economic System PDF

This document discusses different economic systems and their key aspects. It contrasts traditional, command, market, and mixed economies. Traditional economies rely on habit to make economic decisions while command economies involve complete government control. Market economies allow individuals and businesses to make decisions. Most countries have mixed economies with elements of different systems. It also explains concepts like privatization, nationalization, and the circular flow of money between businesses and households.

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Estrada, Jemuel A.
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71 views

IBT Economic System PDF

This document discusses different economic systems and their key aspects. It contrasts traditional, command, market, and mixed economies. Traditional economies rely on habit to make economic decisions while command economies involve complete government control. Market economies allow individuals and businesses to make decisions. Most countries have mixed economies with elements of different systems. It also explains concepts like privatization, nationalization, and the circular flow of money between businesses and households.

Uploaded by

Estrada, Jemuel A.
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Ch.

2 - ECONOMIC SYSTEMS

Command (Centrally
Mixed Market
Planned)

Traditional
Ch. 2 - ECONOMIC SYSTEMS

Today’s Objectives
 I can contrast the different aspects of traditional, command, market, and
mixed economic systems

 I can categorize countries based on their economic system

 I can differentiate nationalization and privatization

 I can explain laissez-faire economics

 I can evaluate the positive and negative elements of each economic system

 I can categorize economic systems based on the amount of government


involvement

Traditional Command Market Mixed


Ch. 2 - ECONOMIC SYSTEMS
Three Fundamental Economic Questions

1. What to Produce? Guns vs. Butter

The problem of scarcity imposes a restriction


on the ability to produce everything we want
during a given period.
Ch. 2 - ECONOMIC SYSTEMS
Three Fundamental Economic Questions

2. How to Produce?

Vs.

How do we mix technology and scarce resources


in order to produce goods and services?
Ch. 2 - ECONOMIC SYSTEMS
Three Fundamental Economic Questions

3. For Whom to Produce?

Society must have a method to decide


who will be “rich” and who will be “poor”.
Ch. 2 - ECONOMIC SYSTEMS
5 Economic Goals

Economic Making the most of resources


Efficiency
Economic Efficiency

Economic Freedom from government intervention in the


Freedom Economic
production Freedom
of goods and services

Assurance that goods and services will be available ,


Economic Security
Economic
and Predictability
Security
payments andon
will be made Predictability
time, and a safety net will
protect individuals in times of economic disaster
Fair distribution of wealth
Economic Equity Economic Equity

Economic Growth Innovation leads to economic growth, and economic


Economic
and Innovation
Growth
growth leads andstandard
to a higher Innovation
of living
Ch. 2 - ECONOMIC SYSTEMS
Traditional Economies

Relies on habit, or ritual to decide how to


answer the 3 economic questions.

• Revolves around the family


• Work divided along gender lines
•Slow to adopt new technology or ideas
Ch. 2 - ECONOMIC SYSTEMS
Centrally Planned (Command) Economies
The government owns both the land and capital and decides on behalf of
the people how to answer the 3 economic questions – requires absolute
loyalty from the people
• Communism - Government controls all aspects of production
• Socialism – government owns some FOP –
•Some private ownership of business in socialism

Attempts to
provide for
everyone
Ch. 2 - ECONOMIC SYSTEMS
Free Market Economies

Individuals and privately owned businesses own the factors of


production and decide how to answer the 3 economic questions

• Specialization of tasks makes the economy more efficient


• Everyone acts in their own self-interest
• No government intervention
• Laissez Faire –
•French phrase to “leave things alone” or “hands-off”

•Voluntary Exchange: a trade in which the parties involved anticipate


that benefits will outweigh the costs
Ch. 2 - ECONOMIC SYSTEMS

Mixed Economies
Elements of traditional, command, and market economies

- Most common economic system

Traditional - Farming Market – Public Market Command – Highways


Ch. 2 - ECONOMIC SYSTEMS
Mixed Economies

The people answer the 3 economic questions with some


intervention from the government to account for market failures

• Economic decisions are made by individuals with government oversight


• Government is a key component of economic activity
• All nations exist in the “mixed economy continuum”

Centrally Planned Free Market


Iran France United United States
N. Korea Sweden Kingdom
Russia Singapore
Cuba Peru Canada
Ch. 2 - ECONOMIC SYSTEMS

Today’s Objectives
I can differentiate nationalization and privatization

I can explain laissez-faire economics

I can identify the elements of the circular flow


diagram

I can evaluate how the factor and product market


interrelate on the circular flow diagram
Factor market Households
Product market Businesses
Ch. 2 - ECONOMIC SYSTEMS

Adam Smith’s Invisible Hand


Self-interest and competition work
together to regulate the
marketplace

Laissez-faire= hands-off
government
Ch. 2 - ECONOMIC SYSTEMS
Ch. 2 - ECONOMIC SYSTEMS
Circular Flow of Money

wa
inte ges, r
res e
men
ts Factor Market $ t, p nt,
or P
a y $ rofi
ts
Fact
$
F.O $ $
L.L.C .P

Households
Businesses
Supp s and
l y Product Market Good
es
servic
$ $ $
Expe
n ditur $ e mand
e s $ D
Ch. 2 - ECONOMIC SYSTEMS

Modern Economies
Privatization: Nationalization:

National companies Private companies


become privately become nationally
owned owned
Ch. 2 - ECONOMIC SYSTEMS

Modern Economies
Privatization: Nationalization:

National companies Private companies


become privately become nationally
owned owned

Faster, Safer, and


Cheaper transportation
has led to an increased
global economy

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