ch 2 Economic Systems ppt(1).pptx

ch 2 Economic Systems ppt(1).pptx - Economic Systems Four...

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Economic Systems
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Four Fundamental questions The resources may be used for a variety of purposes but can only be put to use one at a time. Buyers communicate what they want when they make purchases. Sellers provide goods and services based on demand and price. What to produc e? The decision should result in the maximum number of wants be satisfied. Production is pursued in a manner which ensures the least waste and maximises efficiency, as to therefore maximise profit. Producers combine resources (consumers sell factors of production) to make products they can sell. How much to produc e?
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Resources are scarce but most goods can be produced by using different combinations of these resources The method chosen to produce a particular good will depend on the relative scarcity of the different factors of production eg if labour is scarce, capital intensive methods will be used etc. How to produc e? The ultimate aim of production is to satisfy wants, so the actual distribution of output is very important. Some societies do it by encouraging effort and incentive and reward to those who contribute to production or to provide members of the community including those who cannot contribute enough to the economy’s output to provide for their own needs. For whom to produc e? Four Fundamental questions
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Different economic systems are characterised by: An economic system is the method by which the economy answers the four fundamental questions of what, how much and for whom to produce. This includes System of property and resource ownership The way people are motivated to work The use of money The level of technological development The degree of self sufficiency between individuals and groups There are three distinct types of economic systems Traditional Command Market Each approaches the four factors of production
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Traditional economic system An economic system in which decisions are made on the basis of customs, beliefs, religion, habit is referred to as a primitive economy. A less developed economy. Subsistence production – Villagers who produce to support themselves therefore little surplus of stocks. Basic technology, limited specialisation result in low productivity. In traditional societies, scarce goods are often shared evenly. If there is surplus, exchange would be based on bartering. Direct exchanges of products, without the use of money. Characterised by no application of any business concepts such as, profits. Community focused vs specific individuals getting ahead.
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Command economy An economic system in which the government owns and controls all facets of the economy.
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