Understanding Economic Systems: Key Questions and Types

1. Intro to Business Ch 2: Economic Systems

2. Key Economic Questions • What goods and services are to be produced • How should the goods and services be produced • For whom should the goods and services be produced

3. Additional Question • How will the goods and services be distributed? • Should be goods and services be shared equally among the people • Should the people who contribute more to producing the goods and services be able to get a larger share of them

4. Types of Economic Systems • Custom Based Economy • Third world countries • Based on past customs • Goods are produced the way they have always been

5. Types of Economic Systems • Direct (Planned) Economy • Resources are owned and controlled by the government. • Government decides what and how goods will be produced and shared • Average citizens have little say

6. Types of Economic Systems • Market Economy • Found in countries that have democratic forms of government • Three questions are answered through buying and selling activities in the marketplace • Marketplace – any place where buyers and sellers exchange goods, services, and so form of money

7. Our Economic System • Capitalism – Economic resources are usually privately owned by individuals rather than by the government • Individual owners are free to decide what they will produce with the resources • Another name: Free or Private Enterprise System

8. Private Enterprise • Business – An establishment or enterprise that supplies us with goods and services in exchange for payment in some form • You have the freedom to start or invest in any business you wish as long as you obey the laws in doing so

9. Private Property • Private Property – Means you can own, use, or dispose of things of value. • Dispose – Sell them, give them away, or throw away • In our country, you can own any item and do what you want with it, as long as you do not violate a law in doing so.

10. Profit • Profit – Money left from sales after subtracting all of the costs of operating the business (Expenses) Sales – Expenses = Profit/Loss Loss = Expenses > Sales Profit = Sales > Expenses • Profit Motive – Desire to work hard

11. Competition • Competition – Rivalry among businesses to sell their goods and services to buyers • Gives the consumer the opportunity to make choices

12. Competition • Choices by: • Comparing Prices • Quality • Appearance • Usefulness • Appeal of the goods

13. Competition • Encourages business owners to improve products, offer better services, keep prices reasonable, and produce new things.

14. Freedom of Choice • You have the right to buy where and what you please

15. Mixed Economic Systems • Combine government ownership with some private ownership