6208 Business and Marketing Key Concepts Economics is the study

Business and Marketing
Key Concepts
I. Economics is the study of how individuals and societies seek to satisfy needs and
wants through incentives, choices, and allocation of scarce resources.
A. Resources (natural, human, capital, and entrepreneurial) are limited—scarcity
B. Economic systems provide a way to allocate scarce resources to satisfy needs
and wants
C. Four basic economic systems—traditional, free enterprise, command, mixed
II. Traditional Economy
A. Primarily found in rural, non-developed countries
B. Examples of traditional economy:
1. Amish
2. Indian Tribes
3. Vanuatu (southwestern Pacific Ocean island)
4. Pygmies of Congo
5. Eskimos
6. Belarus
C. Economic decisions are based on customs and centered around family
1. The way it has always been
2. Agrarian economy; hunting and gathering culture
3. Concerned with subsistence and basic survival
4. Men and women have specific roles
III. Free Enterprise System or Market Economy
A. No central coordinator but the economic system self-regulates itself based on the
1. Supply and demand of goods and services determines the price.
2. Prices are set by supply and demand and determine what is produced.
Products, thus, generate competition within the market.
3. No governmental intervention or other central coordinator.
B. Note: There is no true market economy. Most economic systems are a
combination of market and command economies—mixed economies (Part IV).
C. Advantage – Producers strive to create the best goods and services on the
market to eliminate competition and become a monopoly.
D. Disadvantage – An economic system like this could promote illegal business
practices. This system could create a huge rift between the wealthy and the
IV. Command Economy
A. Government controls or dictates what is produced.
B. Also known as planned or managed economy
C. Command economies can vary from a strong command like China or Cuba to a
moderate command like France or Sweden.
D. Advantage – Equal standard of living for everyone because the government
oversees and distributes the necessities of life such as healthcare, national
security, social reforms and school systems.
E. Disadvantage –Fewer choices in the marketplace because government controls
who enters. Less competition in the market, therefore some items are
V. Mixed Economy
A. Mix of command and market economy
B. Government takes care of people’s needs while the market takes care of their
C. Most nations have a mixed economy – e.g. England, United States, Australia
D. A mix of private and public sectors
E. Advantages—private economic freedom; centralized economic planning;
freedom to buy, sell and possess; government provided services for public good;
governmental safeguards
F. Disadvantages—taxes must be paid for government services, governmental
restrictions (legislation and regulations)