5 types of Economic System
1. Primitivism
 Primitive economy is an underdeveloped economy in which communities we
primitive tools and methods to harvest and hunt for food often resulting in little
economic growth. Traditional economics are often food in rural regions with high
level of subsistence farming.
2. Feudalism
 A feudal system (also known as feudalism) is a type of social and political system
in which landholders provide land to tenants in exchange for their loyalty and
service.
3. Capitalism
 Capitalism is often thought of as an economic system in which private actors own
and control property in accord with their interests, and demand and supply freely
set prices in markets in a way that can serve the best interests of society. The
purest form of capitalism is free market or laissez-faire capitalism. Here, private
individuals are unrestrained. They may determine where to invest, what to
produce or sell, and at which prices to exchange goods and services. The laissezfaire marketplace operates without checks or controls.
4. Socialism
 A socialist economic system is characterized by social ownership and operation of
the means of production that may take the form of autonomous cooperatives or
direct public ownership wherein production is carried out directly for use rather
than for profit. Under socialism, all citizens share equally in economic resources
as allocated by a democratically-elected government.
5. Communism
 Economic system where the free exchange of goods and services is controlled by
individuals and groups, not the state. Communism is an economic ideology that
advocates for a classless society in which all property and wealth are
communally-owned, instead of by individuals. Under communism, most property
and economic resources are owned and controlled by the state (rather than
individual citizens).
4 Economic Resources
1. Land
 Any natural resource used to produce goods and services. This includes not just
land, but anything that comes from the land. Some common land or natural
resources are water, oil, copper, natural gas, coal, and forests. Land resources are
the raw materials in the production process.
2. Labor
 Labor is the effort that people contribute to the production of goods and services.
If you have ever been paid for a job, you have contributed labor resources to the
production of goods or services. The income earned by labor resources is called
wages and is the largest source of income for most people.
3. Capital
 Capital, or capital goods, describes the man-made materials that a business uses.
Think of capital as the machinery, tools and buildings humans use to produce
goods and services. Some common examples of capital include hammers,
forklifts, conveyer belts, computers, and delivery vans.
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You might ask, isn't money a type of capital? Money is not capital as economists
define capital because it is not a productive resource. While money can be used to
buy capital, it is the capital good (things such as machinery and tools) that is used
to produce goods and services.
4. Entrepreneurial Ability
 An entrepreneur is a person who combines the other factors of production - land,
labor, and capital - to earn a profit. The most successful entrepreneurs are
innovators who find new ways produce goods and services or who develop new
goods and services to bring to market.
Scarcity of Resources
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Resource scarcity is the lack of availability of supplies required to maintain life, or a
certain quality of life. Goods and services are scarce because the factors of production
used to produce them are scarce. In case you have forgotten, scarcity is described as
limited quantities of resources to meet unlimited wants.
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Resource scarcity occurs when demand for a natural resource is greater than the available
supply – leading to a decline in the stock of available resources. This can lead to
unsustainable growth and a rise in inequality as prices rise making the resource less
affordable for those who are least well-off.
Unlimited Human Wants
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Unlimited wants is an economic term that refers to humans' insatiable appetite for things.
We never get enough because there is always something else that we need or want. The
term 'unlimited wants' is the side of human nature that wants an infinite number of things.
Needs and Wants
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Needs are something that you must have, in order to live. On the contrary, wants are
something that you wish to have, so as to add comforts in your life.
Scarcity
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Scarcity refers to a basic economic problem—the gap between limited resources and
theoretically limitless wants. This situation requires people to make decisions about how
to allocate resources efficiently, in order to satisfy basic needs and as many additional
wants as possible.
When we have scarce resources, we must decide how best to use them. However, this
equally depends on the resources we buy. For instance, the scarcer a resource, the greater
its value. If we look at diamonds, they are very rare and precious – it’s a scarce resource.
At the same time, it is a resource that is highly demanded across the world which means
that it is in high demand but also has a low and limited supply. In turn, this contributes to
its high valuation across the world.
Scarcity can involve non-renewable resources, such as oil, precious metals and helium. It
can also involve potentially renewable resources, which are being consumed faster than
their ability to replenish (e.g., over-fishing, excess use of fresh water.)
Causes of scarcity
1. Demand-induced – High demand for resource
 Resources become scarce when demand increases faster than supply. As more
people buy goods, there are fewer resources available to others.
 For instance, let us say there is a supply of 1 million barrels of oil delivered to the
market – enough to meet demand. However, over the course of a year, demand
increases to over 1.5m barrels. As a result, oil becomes a relatively scarce
resource, driven by the increase in demand. Oil itself is a scarce resource, but
because of the new higher level of demand, it is relatively scarce. Producers are
unable to meet the new demand, which creates a scarcity of resources in the shortterm.
2. Supply-induced – supply of resource running out.
 When demand is constant, but supply declines, we have a supply-driven scarcity.
However, this is created by limited resources. In other words, there is a dwindling
supply that cannot be extended. For instance, the Japanese tsunami of 2011
destroyed hundreds of manufacturing plants which took out a significant source of
supply to both domestic and international markets. Prices inevitably rose as the
economy took the hit.
3. Structural scarcity – mismanagement and inequality
 Structural scarcity occurs when a certain resource is scarce to a proportion of the
population. In other words, there is unequal access to resources because of
political issues or location. For example, people living in the suburbs may not
have the same access to a doctor, and healthcare as someone living in a city. In
addition, they may not have the same choice of schooling to send their kids.
Examples of Scarcity
1. Commodities
 Goods like gold, oil, and other fossil fuels are naturally rare. However, when
demand exceeds its supply, it becomes relatively scarce.
2. Fishing
 When property rights are non- existent, waters can become overfished.
Consequently, certain types of fish become scarce. At any one time, there are only
a limited number of fish available. Therefore, the more the sea gets exploited, the
scarcer the fishes become.
3. Labor
 There are only so many people and so many hours they can work. By its very
nature, this makes it a scarce resource. For example, we only have a certain
number of trained doctors at any one time. Their services are therefore scarce in
the fact that they can only see so many people per day.
4. Land
 By its very nature, land is in limited supply. In fact, in some metropolitan areas, it
is made artificially scarce due to strict land-use laws. For instance, land in New
York is extraordinarily expensive. As more and more people move into the city,
the availability of land also becomes scarcer.
5. Natural Disaster
 Hurricanes, volcano eruptions, and flooding are all examples of natural disasters
that can contribute to scarcity. For instance, avian flu in 2012 contributed to the
death of millions of chickens. As a result, by-products such as eggs became
scarce, especially in South American countries such as Mexico.
Opportunity Cost
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Opportunity costs represent the potential benefits an individual, investor, or business
misses out on when choosing one alternative over another. Because by definition they are
unseen, opportunity costs can be easily overlooked. Understanding the potential missed
opportunities foregone by choosing one investment over another allows for better
decision-making.
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When economists refer to the “opportunity cost” of a resource, they mean the value of the
next-highest-valued alternative use of that resource. If, for example, you spend time and
money going to a movie, you cannot spend that time at home reading a book, and you
can't spend the money on something else.
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The idea behind opportunity cost is that the cost of one item is the lost opportunity to do
or consume something else; in short, opportunity cost is the value of the next best
alternative.
Types of Opportunity Cost
1. Explicit Cost
 This is an opportunity cost that involves a money payment and usually a market
transaction. The money payment is generally made to compensate the person who
has incurred the actual opportunity cost and foregoes the satisfaction. This
payment, in effect, transfers the burden of the opportunity cost from the original
person to the one making payment.
 Input costs that require a direct outlay of money.
Example: attending college > Tuition, books, etc.…
 What is seen; money leaving the firm to purchase inputs from non-owners of the
firm.
2. Implicit Cost
 This is an opportunity cost that DOES NOT involve a money payment or market
transaction. The person incurring the opportunity cost and foregone satisfaction is
not compensated and the cost is not transferred to anyone else.
 Input costs that do not require an outlay of money.
Example: attending college > can’t work (loss of income)
 What is unseen; money that would have come into the firm if they would have
produced something else.
Three Phases in the definition of Opportunity Cost
1. Foregone Alternative
 Opportunity cost is all about foregone alternatives, about not pursuing an activity.
Scarce resources have alternative uses. Using resources to satisfy one want or
need means they cannot be used to satisfy another. The opportunity cost of
foregone alternatives is often illustrated using production possibilities analysis.
2. Highest Valued
 Opportunity cost is not concerned with ALL possible alternatives, only the best
alternative, the highest valued alternative that would have been pursued.
Unlimited wants and needs means an unlimited number of alternatives exist for
every activity undertaken. But opportunity cost is not about every possible
alternative, only about the best alternative.
3. Pursuit of an Activity
 Economics is the study of doing things--surfing the web for economic concepts,
watching television, eating hot fudge sundaes. More to the point, economics is the
study of how scarce resources are used to address society's unlimited wants and
needs. The phrase pursuit of an activity specifically means that society is using
resources to produce goods that are consumed to satisfy wants and needs. The
primary activities pursued in this context are usually production and consumption.