INTRODUCTION ECONOMIC SYSTEMS

Al Muizzuddin Faazaalloh

Kelas FISIP

2018

•Economics studies how individuals andsocieties seek to satisfy needs andwants through incentives, choices, andallocation of scarce resources.

Oil & fuel

Land

Doctors

Technology

•Economic Resources• Natural Resources – raw materials found in nature

that are used to produce goods

• Human Resources – people’s knowledge, efforts,and skills used in their work

• Capital Resources – used to produce goods andservices (buildings, materials, and equipment)

• Entrepreneurial Resources - recognize the need fornew goods or service

•Scarcity – shortage of resources

• Nations use economic systems to determine how to usetheir limited resources effectively.

• Primary goal of an economic system is to provide peoplewith a minimum standard of living, or quality of life.

• Different types of Economic Systems

• Traditional Economy

• Market Economy (free enterprise)

• Command Economy

• Mixed Economy

Traditional Economy

• Found in rural, under-

developed countries–

• Vanuatu

• Pygmies of Congo

• Eskimos & Indian tribes

• Belarus

• Customs govern the economic decisions that are made

• Farming, hunting and gathering are done the same way as the generation before

• Economic activities are centered around the family or ethnic unit

• Men and women are given different economic roles and tasks

• Advantages: people have specific roles; security in the way things are done

• Disadvantages: Technology is not used; difficult to improve

Market Economy (Free Enterprise)

• Also called a Free Market Economy or Free Enterprise Economy

• Businesses and consumers decide what they will produce and purchase and in what quantities

• Decisions are made according to law of supply & demand

• Supply and demand of goods and services determine what is produced and the price that will be

charged.

• Advantage—competition to have the best products and services

• Disadvantage—huge rift between wealthy and poor

• Note: a true market economy does not exist.

Command Economy

• The government (or central authority) determines what, how, and for whom goods and services are produced.

• Two types: • Strong Command – where

government makes all decisions (communism – China, Cuba)

• Moderate Command – where some form of private enterprise exists but the state owns major resources (socialism – France and Sweden)

• Advantages

• Guarantees equal standard of living for everyone

• Less crime and poverty

• Needs are provided for through the government

• Disadvantages

• Minimal choices

• Fewer choices of items

• No incentive to produce better product or engage in entrepreneurship

• Also known as a Planned or Managed Economy

Mixed Economy

•Combination of a market and a command economy

•Government takes of people’s needs

•Marketplace takes care of people’s wants.

•Most nations have a mixed economy: United States, England, Australia

• Advantage—balance of needs and wants met by government and in marketplace

•Disadvantage—citizens have to pay taxes

The economic system is viewed as multidimensional and as capable of being characterized by the following five

characteristics:

• 1. The organization of decision-making arrangements: centralized, decentralized, mixed. The concepts of centralization and decentralization are defined in terms of the distribution of authority and the utilization of information in an economic system. Principal-agent problem is also discussed.

• 2. Mechanisms for providing information and for coordination: market versus plan. Market and plan are compared with respect to who makes decisions in the system, that is, consumer sovereignty versus planners’ preferences.

• 3. Property rights: public, cooperative, private. Property rights are defined in terms of rights to use, dispose of, and/or benefit from the objects generated from the property in question.

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4. Incentives: material and/or moral. Incentive mechanisms and the impact of incentives.

5. Organization of public choice: Dictatorship, democracy. Relating government structure to social economic choice.

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TUGAS 2

• MERANGKUM BUKU PADA CHAPTER 1 : WHAT IS CAPITALISM

• DITULIS TANGAN, PADA KERTAS FOLIO GARIS, MINIMAL 1 HALAMAN.

• NILAI: KURANG DARI 1 HALAMAN = C

• 1 HALAMAN = B

• 2 HALAMAN = B+

• 3 HALAMAN = A