Mr. Rosenstock Economics San Fernando High School Economic Systems Mr. Rosenstock Economics San Fernando High School

Vocabulary: Resource A resource is a source or supply from which benefit is produced Resources are materials, energy, services, staff, knowledge, or other assets that are transformed to produce benefit and in the process may be consumed or made unavailable Benefits of resource utilization may include increased wealth, meeting needs or wants, proper functioning of a system, or enhanced well being

Vocabulary: Scarcity: Scarcity is the fundamental economic problem of having seemingly unlimited human wants in a world of limited resources It states that society has insufficient productive resources to fulfill all human wants and needs Economy / Economic System: An organized way of providing for the wants and needs of a society’s people

Economic Systems All societies have to deal with scarcity All societies have an economy or economic system There are three main types of economic systems: Traditional Command Market

Traditional Economy

A traditional economy is an original economic system in which traditions, customs, and beliefs shape the goods and the services the economy produces, as well as the rules and manner of their distribution In a society with a traditional economy, the way resources are allocated, and how wants and needs are satisfied stem from culture, habit and ritual Traditional economies are found throughout rural areas of Africa, South America and Asia. Cultures with traditional economies include the Inuit (Northern Canada), communities in India, Bangladesh, the Amish in the U.S., etc. In these cultures, people have specific roles to perform: some are hunters or farmers, others are weavers, etc. These roles are passed down from parent to child

The economy is family and community based Technology is basic and concerned mostly with agriculture “Subsistence” farming – little surplus is produced Bartering is the primary method of exchange of goods and services Communities with traditional economies don’t participate in market systems (like stock markets), so they don’t trade with global economies Advantages: Everyone knows what role they have, so they know what to produce Everyone knows how to produce because they were taught from their parents Everyone knows for whom they produce as this is due to custom and ritual Disadvantages: New ideas are usually discouraged People who defy the community are discouraged/ threaten the way of life

Command Economy

Command economy, also called a planned economy, an economic system in which the means of production are publicly owned (by the State or the people) and economic activity is controlled by a central authority that assigns quantitative production goals and allots raw materials to productive enterprises In a command economy a central authority makes the decisions about what, how and for whom goods and services are produced Quantity of goods produced and prices are controlled by the government and not a market The government decides how much to invest in production and what number and variety of goods to produce Prices set by the State. Used to regulate expected total demand from consumers with product available Examples used to be: Soviet Union, China, Cuba and North Korea Advantages: The main advantage is that big changes can be made quickly in a command economy since the government controls production and resources

People don’t usually lose their jobs in a command economy An example would be China which went from a rural to a leading industrial nation in a few decades by emphasizing heavy industry and industrial growth Groups such as the very young, old and disabled often cared for by the state Resources can be directed to specific needs more quickly because of government control (government controls the resources) People don’t usually lose their jobs in a command economy Disadvantages: Command economies are slow to make minor adjustments because often there is a bureaucracy that makes the decisions (not local business or people) May not meet the demands of consumers very well Not as many choices for consumers in a command economy People may lack incentive to work well People with varying skills often receive the same wages

Market Economy (Capitalism)

A market economy is an economy in which decisions regarding investment, production, and distribution are based on market determined supply and demand, and prices of goods and services are determined in a free price system In a market economy individual people and businesses make the decisions about what, how and for whom to produce Quantity of goods produced fluctuate with consumer demand and resources available Prices in a free market are determined by consumer demand and available supply of goods and services Examples include the United States, Western Europe, Mexico, much of Central and South America, and Asia Advantages: Individual freedom supposed to be the main strength of a market economy. Market economies usually adjust to small changes well

Governments don’t interfere with the economy much Greater variety of goods and services often available. People supposed to earn what they are able to command Individuals supposed to be more important in a market economy Disadvantages: Market economies don’t always meet the needs of everyone The young, old and sick not always cared for in a market economy Workers and businesses face uncertainty over jobs and whether they will stay in business Finally if markets aren’t free, then some businesses or individuals can become too powerful and force out smaller businesses