1. Chapter 1: Economic Systems
Intro to Business
Chapter 1: Economic Systems

2. Three Economic Questions
What goods and services will be produced?
What do we have?
How will they be produced?
Hand > machine > elsewhere
Who gets the stuff?

3. 3 Economic Systems
Economic system (economy) – an organized way of providing for the wants and needs of people.
1). Command
2). Market
3). Traditional

4. Command Economies
Economic activity is planned out by the government, with people having little influence.
Central Authority controls all economic decisions
Examples:
Cuba
North Korea
Former Soviet Union

5. Command Economies - Pros
Allows an economy to change direction very quickly.
Under Stalin, Russia moved from a rural agricultural economy to an industrial economy.

6. Command Economies - Pros
Little uncertainty as to who will do what.
No unemployment because the government gives everyone a job (whether it is needed or not).

7. Command Economies - Cons
Not designed to meet the wants of consumers.
Provides strange incentives
Do just enough to meet quotas.

8. Command Economies – More Cons
No rewards for individual performance.
No flexibility to handle problems.
Requires a large decision making agency.

9. Market Economies
People and businesses act in their own best interests to answer the three basic economic questions.
Marketplace has control over the economic decisions

10. Market Economies – How they work
Lure of personal and financial gain leads consumers and businesses to interact in various markets.
Each person acts as they see fit in order to advance their own interests.

11. Market Economies - Pros
Economy can adjust to change over time
Businesses can adapt to changing consumer tastes by creating new/different products.
High degree of individual freedom
Businesses and individuals are free to do what they want.

12. Market Economies – More Pros
Small degree of government interference (Mixed Economy)
Economic decisions are made by all, not limited to government officials.
Seemingly unlimited variety of goods and services available to consumers.

13. Market Economies - Cons
Does not provide for the basic needs of everyone.
Elderly, disabled and other groups would be unable to survive in a market economy without governmental assistance.

14. Market Economies – More Cons
Does not provide certain services that people value.
National Defense & Education.
High degree of uncertainty
Tommy Boy
Jobs going overseas
Market Failures

15. Mixed Economies
Both market forces and government decisions determine which goods are services are produced and distributed
Government doesn’t directly influence private sector to produce goods
Government influence in the form of taxes, national defense, public education, etc.

16. Traditional Economies
Economic activity is based on tradition with roles determined by previous generations.
Customs and tranditions
Examples:
Medieval Europe
Various hunting tribes in Africa and northern Canada

17. Inuits in the Artic Circle Bhutan, Africa
Main concern is survival
Barter for the exchange of excess goods
Produce items necessary for survival
Tools for hunting
Tools for shelter
Inuits in the Artic Circle
Bhutan, Africa

18. Traditional Economies – Pros
Everyone knows what their role is.
Life is generally predictable and stable.
Little to no financial problems
Little drain on natural resources
Sense of community and security

19. Traditional Economies - Cons
Discourages new ideas and new ways of doing things.
Lack of progress leads to a lower standard of living.
No economic growth
Little change to take advantage of modern technology
No social mobility

20. The US Economic System Mixed Economy Capitalism
Based on 4 important principles
Private Property
Freedom of choice
Profit
Competition