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Economic Systems

Economic Systems. Additional Notes from Intro to Econ and Chapter 17 Packet. Types of Economic Systems. WHAT ARE SOME EXAMPLES OF EACH OF THESE IDEAS?. Traditional Based on past traditions Command Economy Government makes all decisions

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Economic Systems

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  1. Economic Systems Additional Notes from Intro to Econ and Chapter 17 Packet

  2. Types of Economic Systems WHAT ARE SOME EXAMPLES OF EACH OF THESE IDEAS? • Traditional • Based on past traditions • Command Economy • Government makes all decisions • Government owns capital (manufactured goods used to make other goods and services) • Market • Rational self-interest • Free market sets prices through competition • Mixed • Some government control WHAT ARE THE PROS/CONS OF EACH SYSTEM?

  3. How Markets Work EXPLAIN THE DIFFERENCE BETWEEN SCARCITY AND SHORTAGE. • Scarcity (NOT A SHORTAGE) • Law of Supply: Businesses will produce more when prices are high • Law of Demand: People will want more when a price is low • Capitalism: productive resources are owned by private citizens • Monopolies: One company is the only one selling a product in a market ARE MONOPOLIES BAD? CAN MONOPOLIES SELL GOODS FOR ANY PRICE THEY WANT?

  4. Types of Businesses • Sole Proprietorships • Small business owned by one person • PROS: own boss, hours chosen by you, profits are yours • CONS: high costs shouldered by owner, high risks • Partnerships • Two or more people share the responsibilities, costs, profits, losses • PROS: own bosses, choices, profits, more people to shoulder costs • CONS: same as sole proprietorships • Non-profit organization • Provide goods and services without seeking to earn a profit • Examples: charities, research groups, etc.

  5. Corporations • Recognized as separate legal entity from owners • Raise money through stock (shares of ownership) • Profits paid to stockholders are known as dividends • Must hold one meeting each year when all stockholders can attend to elect board of directors • Board will choose officers (CEO, President, etc.) • Debt protections through sale of assets WHAT ARE SOME ADVANTAGES OF BEING IN A CORPORATION? WHAT ARE POTENTIAL DISADVANTAGES?

  6. Factors of Production • Natural Resources • Raw materials needed to produce goods that come directly from nature • Only a factor of production if there is a payment to use • Example: Land for businesses • Capital • Equipment that makes other goods and services • Financial Capital: Money used to buy these tools/equipment • Labor • All human effort, skills, and abilities used to produce goods/services • Entrepreneurs HOW ARE ALL OF THESE NECESSARY FOR A COMPANY/NATION TO PRODUCE GOODS?

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