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Free market systems
High degree of government control Low degree of government control
High level of social services Low level of social services
UNDERLYING FORCES Demographics, Beliefs, Values, Cultures, International Events, Discoveries, Resources, Natural Events Societal Element Changes Energy and the Physical Environment Labor & Human Resources Technology Economic Climate Regional & Local Issues International Trade Public Sector Response Regulation Taxation Spending Provision of Services Marketplace Response Prices Quantities Produced Product Quality Costs of Production Business Response Managerial Decision-Making Strategy Implementation Political System Political System Market System Market System Social Involvement- Business Social Responsibility The Concept of Demand Demand is a Schedule of the different quantities of a good or service that a consumer is Willing and Able to purchase at each and every possible price. Determinants of Demand Income Price Price of Substitute Goods and Services Price of Complementary Goods and Services Attitudes and Tastes The Law of Demand If the prices are low, goods and services will be purchased in large quantities. If prices are higher, small quantities will be bought. Types of Economic Systems There are 3 basic types of economic systems. 1. Traditional Economy Economic questions are answered by habits and customs (the way it has always been done) Children work the same jobs parents worked, often farming or hunter/gatherer Ex. Eskimos, the Amish, Pigmies, Bush People 2. Command Economy The government answers the basic economic questions Advantages: able to act quickly in emergencies, provide for all people equally Disadvantages: Inefficient, no incentive to work hard or be creative Ex. Communist Countries (China, Vietnam, North Korea, former Soviet Union, Cuba) Group the following expressions: government interference privately-owned companies market mechanism market reliance state-owned companies central planners laissez-faire government-run business central planning system privately-run companies government intervention USSR PLANNED E. vs. MARKET E. government interference state-owned companies central planning government intervention USSR market mechanism market reliance privately-owned companies privately-run companies laissez-faire ... or both... FREE MARKET ECONOMY (FREE ENTERPRISE ECONOMY) COMMAND ECONOMY (PLANNED ECONOMY) MIXED ECONOMY WHO makes economic decisions The market: -supply and demand sellers-buyers producers – consumers The state Both the market and the state WHY -to allow competition and make the economy more efficient -to provide better quality products at lower costs -to redistribute wealth in the country more fairly -to care for public needs To benefit from both economic systems MIXED ECONOMY PUBLIC SECTOR VS. PRIVATE SECTOR Who provides goods and services? Why? (What is their interest?) What do the two sectors consist of? WHO AND WHY? PUBLIC SECTORVS. PRIVATE SECTOR The government, local authorities (e.g. municipalities, counties) Care for socially important issues of public interest (e.g. protecting environment, consumers, education) Less profitable and unprofitable businesses Private owners Making a profit Profitable businesses WHAT DOES IT CONSIST OF? PUBLIC SECTOR VS. PRIVATE SECTOR State services: e.g. education, defence, social welfare, public safety, utilities Government-owned industries: e.g. public corporations* (e.g. electricity company) Municipal enterprises: local government, e.g. bus company Privately-owned companies Free market economy or state intervention in times of crisis (1)? “Ten short days saw the nationalisation, failure or rescue of what was once the world’s biggest insurer, two of the world’s biggest investment banks, and two giants of America’s mortgage markets” “The bankruptcy of Lehman Brothers and the sale of Merrill Lynch to Bank of America” “government rescue of American International Group (AIG)” The Economist, 20 Sept 2008 Free market economy or state intervention in times of crisis (2)? “Regulation is necessary and much must now be done to improve the laws of finance”: better oversight more transparency supervision of giants accounting that values risk better safer financial transactions (derivatives) The Economist, 20 Sept 2008 My Pizzeria How would my pizzeria function under different economic systems?
