Module 2 unit 1

Economic Systems Overview

• Economic Systems are classified into various types based on how they manage resources, production, and distribution.

• Types of Economic Systems:

  • Pure Planned Economy:

    • Entirely controlled by the government, which makes all economic decisions.

  • Mixed Economies:

    • Combination of market and planned economic systems.

  • Pure Free Market:

    • Economic decisions made by individuals and businesses without government intervention.

  • Pure Communism:

    • All property is publicly owned, and each person works and is paid according to their abilities and needs.

  • Socialist:

    • Sharing of resources and wealth, managed by the state and promoting social welfare.

  • Capitalist:

    • Based on private ownership and the free market, promoting competition and profit.

• Competition Levels:

  • Countries with various economic systems include North Korea (Communism), China (Socialism), France (Mixed), United States (Capitalist), Sweden (Mixed), Japan (Capitalist), and Venezuela (Socialism).

Market Economy

• A market economy centers on production intended to satisfy community needs while maximizing profit.

• Key Features:

  • Resources: Owned by individuals and businesses.

  • Capital: Sourced from banks and private investors.

  • Labour: Individuals choose who they work for and who works for them.

  • Entrepreneurs: Determine production based on community demand and earn profits.

Planned Economy

• In a planned economy, the government orchestrates all economic activities.

• Key Features:

  • Resources: State-owned.

  • Capital: Provided by the government.

  • Labour: The government assigns jobs to its citizens.

  • Entrepreneurs: Non-existent as the state manages all businesses, focusing on goods distribution rather than profit.

Mixed Economy

• A mixed economy incorporates aspects of both market and planned economies.

• Balances government and private enterprise roles in economic decision-making.

Economic Problem Dealing

• Different economic systems tackle economic problems in distinct ways.

• They define how society determines:

  • Types of goods produced.

  • Quantities produced.

Factors of Production (FOP)

• Efficient use of the factors of production is crucial for economic success.

• FOP Categories:

  • Land: Natural resources available for production.

  • Capital: Includes tools, buildings, money, and equipment needed for production.

  • Labour: The workforce providing physical and mental effort.

  • Entrepreneurship: Involves identifying community needs and managing risk in providing goods/services.

Detailed Explanation of FOPs

• Natural Resources:

  • Include water, sunlight, land, plants, animals, and fish available for human use.

• Labour:

  • Encompasses both physical and mental work performed by people.

• Capital:

  • Represents the tangible assets necessary for production (e.g., equipment, buildings).

• Entrepreneurship:

  • Entrepreneurs recognize and respond to community demands using FOPs, accepting both risks and rewards.

Role of Factors of Production in the Economy

• The owner of any factor of production holds significant power in the economic system.

• Each economic system distributes ownership of FOPs differently, influencing control and decision-making within the economy.