I N T R O D U C T I O N T O B U S I N E S S C H A P T E R 2

ECONOMIC SYSTEMS

I c a n d e s c r i b e t h e 3 b a s i c e c o n o mi c q u e s t i o n s e a c h c o u n t r y mu s t a n s w e r t o ma ke d e c i s i o n s a b o u t i t s r e s o u r c e s I l i s t t h e c h a r a c t e r i s t i c s f o r t h e e c o n o mi e s .

•TARGETS

ECONOMICS

The Study of how consumers get their needs and wants by making choices.

Goal of Economic System: To provide citizens with their needs!

3 Basic Economic Questions

What should be produced?

How should it be produced?

Who should share in what is produced?

Economic Systems

Definition How societies distribute resources

Market System

All decisions are made in marketplace.

Marketplace is g & s are bought and sold. (internet, flea market, mall, stand alone store etc.)

Market System

Characteristics Consumers can own what they can afford Business owners decide how to run businesses Consumers make their own decisions, live? Buy? Etc. Competition. Profit!!!

NO GOVERNMENT INTERVENTION NO COUNTRY IS A PURE MARKET ECONOMY

Price, Supply, and Demand

In a market economy there is a relationship between price, supply, and demand. Price - the amount of money given or asked for when goods

and services are bought or sold. Supply – the amount of goods and services that producers will

provide at various prices. Demand – the amount or quantity of goods and services that

consumers are willing to buy at various prices.

Supply and Demand Continued

Supply and Demand interact with each other.

Equilibrium price is the point at which the quantity demanded and the quantity supplied meet.

Supply and Demand…

Law of Supply-Suppliers are willing to supply more

at a higher price than they are at a lower price.

Law of Demand- Consumers are willing to buy more at a lower price than they will buy at a higher price.

Market System

Advantages Incentives to work hard if you can make more money Competition-- better, cheaper products Constant demand for new goods and services encourages

entrepreneurship

Disadvantages Owners and producers reap the most rewards Unskilled people can’t afford basic needs CEO’s make 500 times what a blue collar worker makes A few companies can control the market and manipulate prices

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Command Systems

Definition Central authority makes key economic decisions Characteristics: Govt. decides the 3?s Govt. owns all the resources and businesses. Little choice of what to buy Many goods not available. Prices are controlled by the govt.. No competition Skilled workers earn same $ as unskilled.

Socialism

Govt. owns major resources Airlines, steel, oil, public transportation

Some privately owned businesses Govt. makes key economic decisions (not all) Examples:

Communism

Govt. makes all economic decisions Govt. controls all resources Govt. owns all business Examples:

Mixed Economy

Definition Combination of a market and a command system.

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