ECONOMIC SYSTEMS

Introduction to Business
Lesson 1-3
Key Economic Questions
 What goods and services are to be
produced?
 How should the goods and services be
produced?
 What needs and wants will be satisfied
with the goods and services produced?
Economic Systems
 Traditional (Custom-Based) Economy
 Command Economy
 Market Economy
Traditional (Custom-Based) Economy
 Goods are produced the way they have

always been produced.

 Change and growth occur slowly in

countries where
 economies follow customs, and
 people are poor in material goods
Command Economy
 Resources are owned and controlled by the

government
 Officials of the government (central

committee) decide what and how goods will

be produced and how they will be shared.
Market Economy
 The three questions are answered by

individuals through buying and selling

activities in the marketplace.
 Consumers and businesses make

economic decisions based on their own

interest.
 Marketplace is any
place where buyers
and sellers exchange
goods, services, and
some form of money
 Our Economic System
 Capitalism – economic resources are
usually privately owned by individuals
rather than by the government
 This freedom of the individual to choose

what to produce provides the rationale for

another name:
free enterprise or private enterprise system
Capitalism, free enterprise, private
enterprise refer to a system in which
most economic resources are privately
owned and decisions about production
and distribution are largely made by
voluntary exchange in the marketplace
Features of US Market Economy

 Private Property
 Profit
 Competition
 Freedom of Choice
Business – an
establishment or
enterprise that
supplies us with
goods and services
in exchange for
payment of some
form.
 Private Property – The right to own,
use, or dispose of things of value – sell,
trade, give away, or throw away.

Businesses also have the right to own

property.
Profit – The money left
from sales after
subtracting all the costs
of operating the
business.
Businesses supply goods
and services to the
marketplace for one
main reason – profit.
Profit motive – the desire
to work hard and be
creative to earn a
higher profit
Competition – The rivalry among
businesses to sell their goods and
services to buyers.

Competition encourages owners to

improve products, offer better services,
keep prices reasonable, and produce
new things.
Freedom of Choice – Consumers have the
right to:
 enter business or career of choice,

 own property,

 make a profit,

 compete
Other Rights include
 Right of workers to organize with other

workers
 Right to travel when and where you

please in this country and abroad

 Right to express opinions as long as you

do not slander another person

Mixed Economic Systems
Most countries are thought to have mixed
economic systems.

In U.S., there is some government

regulation of business.
There are some
government-
operated
enterprises.
Emerging Market Economies
Command economies are not designed to
meet the wants and needs of
individuals. In most controlled
economies, workers with different skills
and responsibilities receive similar
wages – little incentive for people to
work hard.
Many controlled economies have
changed.

USSR (Soviet Union) is now Russia.

Other countries are moving toward

market economies.
The
End