Download 4 Factors of Production

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
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