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The lecture provides How Economic Systems Attempt to Allocate and Make Effective Use of Resources through types of economic system, the allocation of resource and argument for and against privatization
ECONOMIC SYSTEMS HOW ECONOMIC SYSTEMS ATTEMPT TO ALLOCATE AND MAKE EFFECTIVE USE OF RESOURCES DO FURTHER READINGS ON CHAPTER Types of Economic Systems Definition: A FREE MARKET ECONOMY has no government control over factors of production (land, labour, capital) It is also known as MARKET ECONOMY A COMMAND ECONOMY does not have a private sector as all resources are owned by the state A MIXED ECONOMY has both a private sector and a public (state) sector Types of Economic Systems There are three different types of economic system which are used by countries to manage their resources as efficiently as possible Free market economy Features: no government control over land, capital and labour businesses produce goods to make a profit prices of goods are influenced by demand and supply of goods Types of Economic Systems Free market economy Advantages freedom to choose goods and services owners able to keep all profits after paying taxes wider range of goods and services (more new business setups) competition to keep prices low Types of Economic Systems Free market economy Disadvantages no government provided goods or services such as health and education services, available to everybody Benefits only those who can afford to pay uncontrolled economic booms or recessions monopolies are created in order to increase price Limited choice for customers MONOPOLY - a business which controls all of the market for a product Types of Economic Systems Command or planned economy the government or the state plans and controls the use of resources no private property government decides what to produce, what to work and what work to perform Types of Economic Systems Command or planned economy Advantages: eliminate any waste resulting from competition between firms work for everybody needs of population are met, but little production of luxury goods for the wealthy Types of Economic Systems Command or planned economy Disadvantages: less incentive to work as government fixes wages and private property not allowed government may not produce goods which people want to buy lack of profit motive for firms leads to low efficiency Types of Economic Systems Mixed economy combines some features of both a free market economy and a command economy Nearly every country in the world has a mixed economy Types of Economic Systems 10 Mixed economy Advantages: Private sector made of businesses not owned by government make own decisions what to produce, how to produce and what price to charge Public sector made up of governemnt – or state-owned and controlled businesses and organisations Some goods and services are provided free of charge (e.g health and education services) Money comes from taxpayers Profit is not always an aim but public service Types of Economic Systems 11 Mixed economy In many countries, the government controls the following important industries/organisations: health education defense public transport water supply electricity supply The Allocation of Resources pages 131-132 12 It is the distribution of the country’s available resources due to SCARCITY Three (3) Aspects to this core problem of scarcity: What goods and services will be produced? How will these goods and services be produced? To whom will the goods and services be distributed? Privatisation 13 Should the government own and control less than it does? In many parts of the world, there has been a very important change in the balance between the public and private sectors in recent years Many governments have sold off businesses they previously owned to new owners in the private sector This is called privatisation Privatisation 14 Arguments in favour of privatisation: private owners with profit motive leads to business efficiency encourages competition to keep price low important business decisions will be made for business reasons – not by governments with politics in mind (eg.building of new power station to create jobs) Privatisation 15 Arguments against privatisation: unprofitable but important services may be closed (eg closing a country bus route or not delivering letters to isolated districts) increasing efficiency to raise profits caused workers to lose jobs creation of monopoly leading to higher prices only few people will benefit from owning the business whereas before privatisation, the whole country could benefit from any profits made TASK 2A 16 RESEARCH WORKSHOP Identify and explain Viet Nam’s economic system Identify the RESOURCES available within Viet Nam How does the economic system of Viet Nam attempt to allocate and make effective use of resources available within the country? ... Types of Economic Systems Mixed economy combines some features of both a free market economy and a command economy Nearly every country in the world has a mixed economy Types of Economic Systems. .. control over land, capital and labour businesses produce goods to make a profit prices of goods are influenced by demand and supply of goods Types of Economic Systems Free market economy Advantages... after paying taxes wider range of goods and services (more new business setups) competition to keep prices low Types of Economic Systems Free market economy Disadvantages no government provided