2Economic SystemsThe way people produce and exchange goods and services is called an economic system.Four types of economic systems: traditional, command, market and mixed.
3Traditional Economy Goods and Services are traded without exchanging money. Also called “barter”.
4Market EconomyProduction of goods and services is determined by the demand from consumers. Also called a Free Market Economy.
5Command Economy Production of goods and services is determined by a central government, whichusually owns the means of production.
6Mixed EconomyA combination of command and market economies provides goods and services so that all people will benefit.
7Economic systems: Satisfy our Wants and Needs Goods – Things we can touch or see that satisfy our wants or needs.Services – Actions people undertake in order to satisfy their wants and needs.
8Types of resources: Production Resources Businesses use three types of production resources to produce goods and services. Natural Human Capital
9Natural ResourcesResources that are present without human interference“gifts of nature”Examples are land, timber and mineral deposits
10Human Resources Any human effort used to produce goods and services Examples include workers and their skills, training and education
11Capital Resources Tools of production Goods used to produce other goods or servicesExamples include tools, machinery and buildings.Money used to purchase these resources is called capital.
12Identifying Resources: Write each resource listed below in the correct category on your paper. NATURALHUMANCAPITALcotton tractor marketing degree table saw computers water driver’s license crude oil employees factory building aluminum electrician’s license land
13Levels of Economic Activity Primary – First levelSecondary – Second levelTertiary – Third level
14Primary Activities Businesses involved in gathering raw materials. Examples include mining and timber companies.
15Secondary ActivitiesBusinesses that add value to materials by changing their form.Examples include automobile manufacturers and textile factories.
16Tertiary ActivitiesCompanies that provide business or professional services.Examples include salespeople, teachers and doctors.
17Identifying Levels of Activity _____ Hershey Chocolate _____ Pilot Gas Station _____ Luck Stone Corp. _____ NTelos _____ Law Well Drilling Inc. _____ Fry Appraisal Co. _____Oak Lawn Cemetery _____ Walmart _____Augusta Medical Center _____ Hollister
18Important Note: The more developed an economy is, the greater the number and variety of activitiesyou will find.
19World trade: Why Do Countries Trade With Each Other? Trade maintains and improves relations between countries.Trade allows countries to acquire goods and services, often natural resources or raw materials, that it does not have available to them.Trade allows countries to obtain products that other countries may produce more efficiently and therefore are less costly.
20International Trade Some Basic Terms: Imports – goods or services that a nation buys from other nationsQ: What type of goods does the U.S. import the most?A: crude oil, refined petroleum, automobiles, food and beverages, raw materials, and consumer goodsExports – the goods or services that a nation produces and then sells to another nationQ: What type of goods does the U.S. export the most?A: capital goods, industrial supplies, raw materials, agriculture products, and automobiles
21…MORE TERMSSpecialization – the idea of countries only making those products that they produce the most efficientlyAbsolute Advantage – a country’s ability to produce more of a given product than can another countryComparative Advantage – a country’s ability to produce a given product relatively more efficiently than another country – or – production at a lower opportunity cost
22SPECIALIZATIONThe key to international trade is specialization. Even though one country may have an absolute advantage over another country in producing all concerned products it can still be beneficial for both countries to specialize and trade.Take some time to complete the Enrichment Activity and you will see for yourself.