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Notes 8.6 Economic Systems 4 Factors of Production 1. Capital or Capital Goods- money or tools needed to produce goods/services 2. Land / Resources– the natural resources needed to produce goods/services Factors of Production 3. Labor– the work required to produce goods/services 4. Entrepreneur—those who start new businesses; new ideas; promote new industry Command Economy -the government controls the factors of production -Communist/Dictator -Ex. Russia, North Korea Advantages -no social classes Disadvantages -no incentive to be rich -all poor; equal -government controls all aspects of life Traditional Economy -people supply most of the goods and services they use -many things are done by tradition -usually in places of little technology ex. Amish, 3rd world countries Advantages -Little government control -close communities -”earthy” Disadvantages -lack of technology -labor intensive work Market Economy -individuals own factors of production -also called free enterprise, capitalism -Adam Smith: father of capitalism, 1777 “Wealth of Nations” “invisible hand”: competition, supply and demand sets prices consumer sovereignty Advantages - laissez-faire economics : little gov’t control - Become wealthy - Freedom in market Disadvantages -large gap between rich and poor Mixed Economy -a mixing together of market and command systems -Economy of the US -individuals have economic freedoms -government retains some control for benefit of citizens Advantages -safety; fewer risks Disadvantages -increasing gov’t control Six Features of Capitalism 1. 2. Private Property – right to own personal property, business, no interference from gov’t Competition – between businesses Benefits: lower prices, better quality, more services Costs: waste, duplication of effort Six Features of Capitalism 3. Economic Freedom – (Free Enterprise) – make your decisions 4. Voluntary Exchange – buyers and sellers 5. Markets – places where the prices are determined, exchanges take place 6. Profit Motive – driving force encourages individuals improve their life style http://www.youtube.com/watch?v=3eIg Hx_4iJo