Demand Economies Socialist Economies Capitalist Economies Free Market Economies

1.01 How does an economic system affect the environment in which businesses function?

What should we produce?

How should we produce it?

For whom are we producing?

1.01 How does an economic system affect the environment in which businesses function?

Availability of raw materials Availability of means of production Availability of human resources Entrepreneurial resources

Imagination, creativity, and risk taking

1.01 How does an economic system affect the environment in which businesses function?

Government controls the factors of production

Government answers the 3 basic economic questions

1.01 How does an economic system affect the environment in which businesses function?

Government controls major portions of the economy making all the decisions◦ Education◦ Communication◦ Transportation◦ Healthcare

Allows some portions of the economy to be capitalist or free market

1.01 How does an economic system affect the environment in which businesses function?

Supply and demand controls product availability

Significant amounts of taxation and regulation

1.01 How does an economic system affect the environment in which businesses function?

Supply and demand controls product availability

Government does not involve itself in the marketplace◦ Caveat emptor – Let the buyer beware◦ Venditat emptor – Let the seller beware

1.01 How does an economic system affect the environment in which businesses function?

Adam Smith – The Wealth of Nations◦ An “Invisible Hand” guides products into and out of the

marketplace◦ Because a consumer can vote with her wallet, inferior

products will be voted off the island◦ Innovation and competition occur protecting us from

monopolies Demand – The amount of goods or services consumers

are willing and able to purchase at a given price. Supply – The amount of goods or services providers are

willing and able to sell at a given price. Equilibrium – The point at which buyers and sellers agree

on quantity and price.◦ Happens every time money is exchanged.

1.01 How does an economic system affect the environment in which businesses function?