1. ECS 1501
Learning Unit 2

2. Learning Outcomes
Once you have studied this Learning Unit you should be able to:
describe the three central economic questions
describe the major differences between traditional, command, market & mixed economies
describe the salient features of the market economy

3. 2.1 Different economic systems
Read pg. 26 in your textbook and read Box 2-1
2.1 Different economic systems
System is a network of parts which form a pattern
Economic system is a pattern of organisation aimed at solving the 3 central questions
Types of economic systems:
Traditional
System
Command
Market
Mixed
In this learning unit you need to tell the students more about the different types of economics systems. Although they are different – they all try to solve the basic fundamental economics problems: what to produce, how to produce it and for whom to produce it.

4. Read pg. 26 in your textbook
Traditional System
Oldest system
All tasks and methods of production are prescribed by custom
Rigid system which is slow to adapt and resists innovation
Tend to be subsistence economies

5. Read pg. 26 - 28 in your textbook
Command System
Central authority (the government) determines what should be produced and how it should be produced
Also called centrally planned systems
Characterised by state ownership of goods, services and factors of production (excl. labour)
Eg, North Korea is still largely based on central planning

6. Read pg. 28-30 in your textbook and read Box 2-4
Market System
Market = Any contact or communication between potential buyers and sellers of a good or service
There are conditions that must exist for something to be classified as a market
Individual preferences and decisions are communicated through the market mechanism such as the market price.
Market Price = Indicate to consumers what they have to sacrifice to obtain the goods and services concerned

7. Conditions for a Market
One potential buyer & one potential seller
Seller must have something to sell
Buyer must have means to purchase
Market price must be determined
Agreement must be guaranteed by law

8. Market System (cont.)
Market capitalism = System in which most factors of production are privately owned
Characterised by individualism, private freedom and property, decentralised decision making etc
Economic activity is driven by self-interest
Answers the 3 central questions of economics
Economics agents respond to incentives
Competition is a NB feature
However, it includes a tendency to inequality and instability

9. Read pg. 30-33 in your textbook.
Mixed System
All economic systems are a mixture of the traditional, command and market systems.
The South African economy is mixed, there is private property, private interest as well as a degree of government intervention.
Pure market capitalism: All factors of production are privately owned
In SA some enterprises are directly or indirectly owned by the state. Eg. Transnet, Eskom, SABC and The Post Office

10. Privatisation
Privatisation means private companies takes ownership of public enterprises.

11. Nationalisation
Nationalisation means the government takes ownership of private companies.
State-owned companies such as Eskom is NOT nationalisation!
Important: Nationalisation is the TRANSFER of private ownership to public ownership.

12. Mixed System
In pure market capitalism there is an absence of direct state interference in the economic decisions of producers and consumers
Pure market system all prices are established through market mechanisms
In pure market capitalism there is an assumption of perfect competition, no buyer/seller can influence the price of a good or service
When there is government intervention, imperfect competition is likely in certain sectors
SA does not have a pure market system, the system is mixed in which both the market mechanism and government intervention play a role.