1. THE ECONOMIC SYSTEM
3 BASIC ECONOMIC PROBLEMS
1. WHAT GOODS AND SERVICES
SHOULD BE PRODUCED AND IN
WHAT QUANTITIES?
2. HOW THESE GOODS AND
SERVICES SHOULD BE
PRODUCED?
3. FOR WHOM SHOULD THESE
GOODS AND SERVICES BE
PRODUCED

2. RESOURCES/FACTORS OF
PRODUCTION


LAND – SOURCE OF ALL
MATERIALS AND FOOD IN
WHATEVER FORM, IN OR
ABOVE THE EARTH.
LABOR – HUMAN EFFORT; THE
AVAILABLE PHYSICAL AND
MENTAL TALENTS OF THE
PEOPLE WHO HAVE TO
PRODUCE THE GOODS AND
SERVICES

3. RESOURCES/FACTORS OF
PRODUCTION

CAPITAL – TANGIBLE PHYSICAL
GOOD THAT A PERSON CREATES IN
THE EXPECTATIION THAT IT USE WILL
IMPROVE OR INCREASE FUTURE
PRODUCTION


CAPITAL FORMATION = INVESTMENT
ENTREPRENEURSHIP – PEOPLE ARE
COMBINIG THE OTHER THREE
FACTORS TO CREATE PRODUCTS
AND SERVICES

4. CHARACTERISTICS OF
ENTREPRENEURS




Have competence to organize
the factors of production.
Know how to make business
decisions.
Risk Takers.
Innovators

5. IS MONEY A RESOURCE OR
FACTOR OF PRODUCTION?


A MEANS OF ACQUIRING WEALTH
AND A WAY OF MEASURING
WEALTH…
IT REPRESENTS ONLY A CAIM ON
THE RESOURCES OWNED BY ANY
NATION

6. ECONOMIC SYSTEM

A SET OF ECONOMIC
INSTITUTIONS THAT DOMINATE A
GIVEN ECONOMY WITH THE MAIN
OBJECTIVE OF SOLVING THE
BASIC ECONOMIC PROBLEMS.

7. TRAIDITIONAL ECONOMY


ECONOMIC DECISIONS ARE MADE
WITH GREAT INFLUENCE FROM
THE PAST.
IT FINDS ANSWERS THE
ECONOMIC PROBLEMS BY
COPYING/DUPLICATING
DECISIONS MADE BY PREVIOUS
GENERATIONS

8. TRADITIONAL ECONOMY

CHARACTERISTICS




COMMUNAL LAND OWNERSHIP
THE LEADER DECIDES THE
MANAGEMENT OF AGRICULTURAL
PRODUCTION WHICH IS THE BASIS OF
THE ECONOMY
PRODUCTION, DISTRIBUTION AND USE
OF ECONOMIC RESOURCES ARE
BASED ON TRADITIONAL PRACTICES
NEW TECHNOLOGIES ARE NOT
WELCOME

9. TRADITIONAL ECONOMY

CHARACTERISTICS


THE ECONOMY IS ONLY ITS THIRD
PRIORITY WHILE CULTURE AND
RELIGION ARE ITS FOREMOST
PRIORITIES
MINES ARE USED TO GATHER RAW
MATERIALS FOR PRODUCTION

10. COMMAND ECONOMY


FACTORS OF PRODUCTION AND
DISTRIBUTION ARE OWNED AND
MANAGED BY THE STATE
OPERATES LIKE A MILITARY
WHERE DECISIIONS ARE MADE
FROM THE TOP AUTHORITY.

11. COMMAND ECONOMY

CHARACTERISTICS




RESOURCE ALLOCATION IS MADE BY
THE GOVERNMENT.
PRESENCE OF CENTRAL PLANNNG OF
ALL ECONOMIC ACTIVITIES
NO FREE COMPETITION (GOVERNMENT
IS THE ONLY SELLER)
PRODUCTS AND NEEDS OF THE
PEOPLE ARE DISTRIBUTED BASED ON
PRIORITIES SET BY THE GOVERNMENT

12. MARKET ECONOMY



INDIVIDUAL CONSUMERS AND
BUSINESS INTERACT TO SOLVE
ECONOMIC PROBLEMS.
PRICE DICTATES WHAT GOODS AND
SERVICES WILL BE PRODUCED.
WHEN A PRICE IS AGREED U[PON
AND SALE IS MADE, IT MEANS THE
THREE BASIC ECONOMIC PROBLEMS
ARE ANSWERED

13. MARKET ECONOMY


MARKET – describes any method, or
place, at which buyers can
communicate to sellers
A good or service is purchased or sold
for a PRICE and it determines what
kind of economic activity will take
place in the market system

14. MARKET ECONOMY

CHARACTERISTCS




PRIVATE SECTOR OWNS AND MANAGES
THE MEANS FOR PRODUCTION
THE PRICE SYSTEM IN A MARKET
STRUCTURE APPLIES TO DETERMINE
HOW MUCH WILL BE PAID FOR A
CERTAIN COMMODITY OR SERVICE
LAISSEZ-FAIRE/FREE ENTERPRISE
MINIMUM GOVERNMENT
INTERFERENCE

15. MARKET ECONOMY


EXISTENCE OF COMPETITION
OFTEN RESULTS TO MONOPOLY.
THERE IS ECONOMIC POWER

16. MIXED ECONOMY

BOTH PRIVATE AND PBLIC
INSTITUTIONS EXERCISE ECONOMIC
CONTROL



MEANS OF PRODUCTION ARE OWED BY
PRIVATE AS WELL AS THE
GOVERNMENT.
PEOPLE DECIDE ON ECONOMIC
ACTIVITIES WITHIN THE ECONOMY
BEST COMBINATION OF CAPITALIST AND
COMMAND ECONOMIES

17. CIRCULAR FLOW OF
ECONOMY
goods and services
Factors of Production
(land, labor, capital, entrepreneurship)
Business Sector
Household sector
Factors of Payment
(rent, wage, interest, profit)
Payment for purchases of goods and services

18. LAW OF SCARCITY



GOODS ARE SCARCE BECAUSE
THERE ARE NOT ENOUGH
RESOURCES TO PRODUCE ALL
THE GOODS THAT PEOPLE WANT
TO CONSUME.
GOODS – TANGIBLE
SERVICES - INTANGIBLE