economic systems

Question 1

Define economic systems

Answer 1

the way in which the resources of a country are used to produce goods and services, and the
manner in which these goods and services are distributed for consumption.

Question 2

functions of economic systems

Answer 2

 The allocation of resources.
 The organization of production.
 The distribution of finished goods and services.

Question 3

types of economic systems

Answer 3

1. Traditional economy
2. Free market/free enterprise/capitalist economy
3. Planned/socialist/command economy
4. Mixed economy

Question 4

traditional economy

Answer 4

A traditional economy is generally regarded as being the operation of primitive societies where individuals existed on a subsistence level. This system can be found existing in remote tribal areas in South America Africa and Asia.
Advantages include:
 Every member of society knows exactly what they are to do.
 There is a strong social network.
Disadvantages include:
 This type of society is often very slow to change.
 It does not take advantage of technological innovation.
 There is relatively little promotion of intellectual and scientific development.

Question 5

Free market/free enterprise/capitalist economy

Answer 5

In this economy the private sector controls all economic activity and makes all economic decisions. Example, Hong
Kong, United States.
Characteristics/Features include:
 There is little or no government intervention.
 There is freedom of choice for consumers and producers.
 Prices are set by the market forces of demand and supply.
 There is competition among firms.

Advantages include:
 There is freedom from government interference.
 There is complete freedom of choice for consumers and producers.
 The system works for the self-interest of all groups in the system.
 Since resources are allocated to their most profitable use in free markets, efficiency is promoted.
Disadvantages include:
 The system leads to inequalities of wealth.
 There is little or no production of public goods, such as, roads, street lights, health and education.
 There is wastage of resources through extensive advertising, necessitated by the intense level of competition.

Question 6

Planned/socialist/communist economy

Answer 6

In this economy the government/state/public sector controls all economic activity and makes all economic decisions. Examples, Cuba and North Korea.
Characteristics/Features include:
 The government controls all economic activity.
 There is no freedom of choice for producers and consumers.
 Prices are set by the state.
 Wasteful competition is avoided.
Advantages include:
 The welfare of all citizens is the primary goal of this economic system.
 There is full employment of all available resources.
 Wasteful competition is avoided.
Disadvantages include:
 There is no freedom of choice for consumers and producers.
 A lack of incentive for workers results in low morale and efficiency.
 There are too many officials, and too much unnecessary procedure and paperwork (known as red tape or
bureaucracy).

Question 7

mixed economy

Answer 7

decisions. Example, Trinidad and Tobago.
Characteristics/Features include:
 Involvement of both state and private individuals.
 Efficient use of resources.
 More equitable distribution of income than Free Market economies.
Advantages include:
 Both sectors of the economy engage in activities that can best produce and, therefore, there is a more efficient use
of resources.
 Governments are free to make laws to protect the natural resources and the people.

Disadvantages include:
 There is always a need to keep a balance between the government and private sector involvement.
 Conflict may arise between government and private sector investment and thus result in long delays in the production of goods and services.

Question 8

Private sector

Answer 8

The private sector is that part of the economy that is funded by private individuals and firms and is, therefore, owned and controlled by private firms.
Objectives/Aims of the private sector include:
 The aim is to make a profit.
 The business is funded by the owner and private individuals.
 It is owned and controlled by private individuals and firms.
 There is little or no government intervention or control.

Answer 9

The public sector is that part of the economy that is financed by the government/state through the taxpayers and is
controlled and operated by the government or its agent.
Objectives/Aims of the public sector include:
 Aims to provide a service at the lowest possible cost.
 Usually funded by the government through taxation.
 It is owned and controlled by the government/state.
 Uses profits to improve the efficiency of the firm or to benefit all citizens.