ECONOMIC SYSTEMS
Business Management
Today’s Objective


Compare economic systems, free
markets, and economic-political
systems
3
major economic systems
3
economic-political systems
Consider societal impacts and longrange prospects of each system.
Economic Questions
Economic systems are determined based
on the three economic questions.
The Economic Questions


Each nation must
answer these
questions when
deciding how to use
their limited
resources.
The way the
questions are
answered defines
the nation’s
economic system.
1.
2.
3.
What goods and
services should be
produced?
How should those
goods and services
be produced?
For whom should
the goods and
services be
produced?
Economic Systems
Economists classify economic
systems into three categories:

Market Economies

Command Economies

Mixed Economies
MARKET Economies



Individuals own the
means of
production.
There is NO
government
involvement.
Businesses compete
for customers.
Market Economies



What: consumers decide what will be
produced by the purchases they make
How: companies find the most
efficient means of production to
increase profits
For Whom: the people with
purchasing power
Think About It…
Are there any pure market economies in
the world today?
Market Economies Today



Prices would be
freely set based
entirely on laws of
supply & demand
No such thing!
Term used to
describe economies
largely dictated by
market forces
COMMAND Economies


All economic
decisions are
made by the
country’s
government.
Wealth is shared
equally among all
to ensure
everyone’s basic
needs are met.
Command Economies



What: one person (usually a
dictator) decides what will be
produced
How: resources are owned and
controlled by the government
For Whom: government decides
who will get which products
Think About It
Are there any pure command economies in
the world today?
MIXED Economies


NO economy is purely
any one economic
system.
Mixed economies have
government-operated
or governmentregulated enterprises
combined with
individually owned
enterprises.

The United States
is a mixed economy
with strong
characteristics of a
market economy.

Government has some
involvement in
business

Government influence
is limited by laws and
regulations
Mixed Economies
Nations today
typically follow
one of three
different
economic-political
systems.
1.
Capitalism
2.
Communism
3.
Socialism
Capitalism

Characterized by:
 Marketplace
competition
 Private ownership of
business

Role of Government
 Support
the people
 Take care of those
that cannot care for
themselves
Characteristics of Capitalism

Private Property

Profit

Price Determination (set your own)

Competition

Distribution of Income
Think About It…
Because capitalism
is a mixed
economy, we have
some governmentregulated
industries.
 What are some of
our governmentregulated
industries?



Capitalism is also
characterized by
private ownership.
Businesses are free to
compete without
government
interference.
Think of an example
of two businesses
that are competitors
against each other.
Consider the U.S.

The U.S. economy is primarily
characterized by capitalism but also
has some elements of socialism.
 Most
decisions are left to private
business & consumer choices
 The
government provides public
enterprise, like defense, education, aid
for low-income, social security, etc.
Communism

Characterized by:
TOTAL government control



In theory, this ensures
everyone will be equal.
In reality, there is
nothing to drive people
to better themselves or
to work hard.
Examples: North Korea,
Cuba, China
Let’s Look at China

China’s economic-political system is
frequently referred to as a socialist
market economy.
 Key
industries are government owned.
 Prices
are allowed to fluctuate based
on the market.
Socialism

Similar to
capitalism, but with
greater government
involvement

More social services

Higher taxes to pay
for gov’t services

Key industries are
government-run

Examples: Canada,
Germany, Sweden
Review
What are the 3 economic
questions?
 What are the 3 types of
economies?
 How is each system characterized?
 What are the 3 economic-political
systems (mixed economies)?

Poster Project!
You will be assigned to a group. Each
group will be given a country.
Examine the societal impacts of your
country’s economic-political system.
What are the long-range prospects of your
country’s system?