What is an economic system

Question 1

What is an economic system?

Answer 1

Is the way a country organizes its resources and distributes goods and services to its citizens.

Question 2

What defines a country’s economic system?

Answer 2

1. What should the country produce and in what quantities?
2. How should scarce resources such as labour and capital (money, machinery etc) be allocated? (who do you want to create your Iphone)
3. How should goods and services be distributed throughout the country?
4. What should be the price of the goods and services?

Question 3

Three types of economic systems

Answer 3

1. Market Economy
2. Centrally Planned Economy
3. Mixed Economy

Question 4

Market economy

Answer 4

• Also known as capitalism or private enterprise.
• Businesses and consumers answer the 4 questions.
• Businesses, consumers and the government act independently of one another.
• Market forces and self-interest determine what goods are created and sold.

Question 5

The government (market economy)

Answer 5

Has little direct involvement in business.

Question 6

Main duty (market economy)

Answer 6

Is to create an atmosphere in which citizens and corporations can be successful

Question 7

Three Components Defined

Answer 7

• Private Property
• Profit
• Competition

Question 8

Private Property

Answer 8

• Corporations & people are encouraged to own property (real estate, equipment, automobiles, etc.)
• Owners can purchase, rent, trade, sell and give their property to whomever they want

Question 9

Profit

Answer 9

• The reward for risk is encouraged
• Profitable companies provide employment, create new products, expand and start new ventures
• Belongs to the owners of the business and they can choose how to spend it (reinvest or personal goods)

Question 10

Competition

Answer 10

• Is critical in this system
• Companies compete on quality, services, price, reputation and warranties
• Encourages companies to provide quality products at reasonable prices
• As a result consumers have access to greater selection and new products

Question 11

Advantages

Answer 11

1. Freedom of speech, religion, assembly
2. Efficient use of resources
3. New products
4. Economic growth
5. Good quality products
6. Low prices

Question 12

DISADVANTAGES

Answer 12

1. Gap between rich and poor expands
2. Lack of consumer education
3. Unhealthy products