Transcript Economic Systems

Economic Systems
• An economic system is the way in which
decisions about what will be produced are
made. There are three possible types of
economic system:
• PLANNED ECONOMY – An economic system
in which the government decides what will be
produced.
• MARKET ECONOMY – An economic system in
which producers and consumers are free to
produce and consume as they wish. Supply and
demand control the economy – no country in
real life has total market control.
• MIXED ECONOMY – An economic
system in which there is both private
and public sectors. Some resources are
controlled by private firms and others
by the government. The government
tries to manage the economy in the
interests of the people.
Advantages of Planned
Economies
Disadvantages of
Planned Economies
Government controls production to Difficult for officials to decide what
make sure essential goods and
goods and services will be needed
services are produced
Government can control
distribution to ensure everyone
has reasonable standard of living
Production may be inefficient –
managers and workers have little
incentive because there is no profit
motive
Shortages of goods can occur and
this leads to the development of a
black market
There may be no choice for the
consumer
Advantages of Market
Economies
Disadvantages of
Market Economies
What is produced is decided by
Producers will only produce those
the consumers and producers who goods that make them a profit –
buy the products
they may not produce some goods
and services for poor people or
that benefit society as a whole
The profit motive encourages
enterprise and efficiency
There may be great inequalities in
income
Competition exists between
producers – this should lead to
more choice and cheaper prices
Firms, motivated by private profit,
may ignore social costs of
production
QuestionTime
• Write an Explanation of the advantages of
having a mixed economy
• TWO MINUTES THEN WE WILL
DISCUSS ANSWERS
The Most Important Areas of
Government Control Are:
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HEALTH
EDUCATION
DEFENCE
PUBLIC TRANSPORT
WATER SUPPLY
ELECTRICITY SUPPLY
PRIVATISATION
• When businesses are sold off by the
government to the highest bidder.
• This process means the business moves
from the PUBLIC sector to the PRIVATE
sector.
WHY DO GOVERNMENTS DO THIS?
ADVANTAGES
• Profit is the main aim - therefore efficiency
(no waste) is crucial!
• Competition encouraged  healthy for the
industry and the customer benefits from
CHOICE & LOW PRICES
• Governments RAISE CAPITAL to fund
other services
E.G. Banks in England
Disadvantages
• Some services closed if make a loss – no
fire or health service! Is this good!
• Workers may lose jobs
• Could be sold to one owner 
MONOPOLY – is this good??
• Only few benefit from profit – before all
public would benefit.
Homework
• Investigate the term – ‘Credit Crunch’
• What is it
• How did it happen
• What have been the effects around the
world