GRADE 10 BUSINESS/ OPTION ECONOMICS

ECONOMIC SYSTEMS

• An economic system is the system used in an economy to answer the three basic
economic questions of “What”, “How” and “For whom”.

• It is a means by which societies or governments organize and distribute available

resources, services, and goods across a geographic region or country.

• An economic system is a system of production, resource

allocation and distribution of goods and services within a country.

• It is also referred to as allocative mechanisms.

TYPES OF MARKET SYSTEMS

1. TRADITIONAL/ SUBSISTENCE ECONOMY

• The community operates on tradition, where the customs and habits are
followed without change or adjustment.
• These are referred to as subsistence economies because they are self sufficient.
• They produce sufficient output to meet their needs so trade within and outside
the community is limited.
• Given that tradition is followed, the basic economic questions are already
answered.

Sources: Comprehensive Economics for CSEC

Longman Economics for CXC
Economics for CSEC Examination
Economics: Caribbean Secondary Education Certificate
Page 1
 GRADE 10 BUSINESS/ OPTION ECONOMICS

• Agriculture is the base of the economy as well as pottery for the manufacture of
clothes.
• Barter is also practiced.
• Vocations are passed down from one family member to another. There is no
upward movement of labour.
• Capital is also retained within the family.
• Risk taking is very rare since farmers cannot afford to produce another crop in
case it is unsuccessful.
• The economy is quite inefficient. Why? Excess amounts of food is not produced
which results in people having barely enough to survive.
• Practiced in isolated tribes in Africa, Asia and South America

ADVANTAGES DISADVANTAGES
• Trading is through • They are vulnerable to
bartering, instead of the change eg. Weather
use of money • When there is a poor
• People are less harvest, people starve
dependent on the
outside world

2. MARKET/ FREE MARKET ECONOMY

• This is also referred to as a capitalist economy.

• It is based on free trade, supply and demand.
• Individuals, households and firms make economic decisions.
• The govt. plays a minor role
• Capital and land are privately owned.
• People have the freedom to make their own choices.
• Prices are determined by demand and supply.
• Firms aim to maximize profits
• Employees aim to maximize their wages

Sources: Comprehensive Economics for CSEC

Longman Economics for CXC
Economics for CSEC Examination
Economics: Caribbean Secondary Education Certificate
Page 2
 GRADE 10 BUSINESS/ OPTION ECONOMICS

• Such a system is used by Hong Kong and Switzerland

ADVANTAGES DISADVANTAGES
• Consumer sovereignty • Inequality
• Higher efficiency • Dangerous products
• Higher investments • Monopoly and
• New inventions and imperfect competition
innovations • Lack of public goods
• More variety and better-
quality goods

PLEASE REFER TO TEXTBOOK, PG. 28 FOR DETAILED INFORMATION

3. COMMAND/PLANNED ECONOMY
• The government makes all economic decisions. Economic decisions are made
with the objective of maximizing the welfare of society. Also known as a
Communist economy.
• Land and capital cannot be privately owned, all resources are owned by the
state. Government receives the rent and interest earned from the use of these
factors of production.
• All prices are set and controlled by the state and all profits are earned by the
state.
• Firms do not produce to make a profit; they produce what the government
thinks will be in the best interest of the people.
• This system is currently being used in countries such as China, North Korea and
Cuba.
ADVANTAGES DISADVANTAGES
• All economic decisions are • Lack of choices for consumers
made by the state. • Complacency
• Full employment of resources • Government may produce
• Prices do not change goods not required by the
• Equality is achieved consumers
• Low quality goods and
services.

Sources: Comprehensive Economics for CSEC

Longman Economics for CXC
Economics for CSEC Examination
Economics: Caribbean Secondary Education Certificate
Page 3
 GRADE 10 BUSINESS/ OPTION ECONOMICS

4. MIXED ECONOMY
• These are economies in which economic decisions are taken by the price system
and some by the state.
• It is a combination of planned and market economy.
• Individuals primarily own the available factors of production, government owns a
small portion.
• There is competition among producers.
• A monopoly can be created resulting in higher prices being charged.
• There is an inequitable distribution of wealth where only the individuals you can
afford to pay the price will benefit.

ADVANTAGES DISADVANTAGES
• Efficient allocation of • Monopolies can be
resources. created
• Competition keeps prices • Inequitable distribution of
low. wealth
• Incentives for innovation and
production efficiency (profits)
• Government support and
intervention

Sources: Comprehensive Economics for CSEC

Longman Economics for CXC
Economics for CSEC Examination
Economics: Caribbean Secondary Education Certificate
Page 4
 GRADE 10 BUSINESS/ OPTION ECONOMICS

BASIC COMPARISON OF ECONOMIC SYSTEMS

REASONS WHY GOVERNMENT EXERCISE CONTROL OVER THE ECONOMY

A key economic debate is the extent to which should governments intervene in the
economy? Most economists believe it is a question of balance, with the government
intervening in areas where the market fails to provide a desirable outcome. Main areas
of government intervention include:

• Provide public goods (e.g. national defense) from general taxation

• Provide basic health care and education standards.
• Environmental regulation and protection.
• Limit the power of monopolies.
• Regulation on worker rights.

Government intervention is important because it addresses the following issues:

1. Inequalities: private ownership of land and capital enables a certain set of people
to accumulate large amounts of wealth.

2. Instability: the market without government intervention can fall into a slump and
create unemployment among other things.

Sources: Comprehensive Economics for CSEC

Longman Economics for CXC
Economics for CSEC Examination
Economics: Caribbean Secondary Education Certificate
Page 5
 GRADE 10 BUSINESS/ OPTION ECONOMICS

3. Dominant firms: competition allows successful firms to drive out the less successful
ones. This would mean that eventually, a very small number of firms will dominate the
market and obtain market power.

4. Welfare: firms which suffer a serious fall in demand for their products will fail. This will
result in unemployment and shareholders will lose the money they invested.

SOCIAL COSTS AND BENEFITS

• Costs incurred by a firm producing goods and services are referred to as private
costs.
• However, the production of a commodity imposes costs on a society as a whole
which are not borne by the producer. These are referred to as social costs.
• For example, the price of a good produced by a firm which pollutes the
atmosphere with smoke from its factory does not include the ‘costs’ of the
dangers to society.

• The benefits gained by the person who buys a good or service are described as
private benefits. However, some firms can cause external benefits due to its
activities.
• For example, a firm may train workers, which might get them better wages in
other firms. These external benefits are free.

SCENARIO:

A new football stadium is planned for a town. Here is a list of the private costs and
benefits and the external costs and benefits associated with the building and running of
the stadium

Sources: Comprehensive Economics for CSEC

Longman Economics for CXC
Economics for CSEC Examination
Economics: Caribbean Secondary Education Certificate
Page 6
 GRADE 10 BUSINESS/ OPTION ECONOMICS

Benefits Costs
Private • Utility gained by • Construction costs
spectators • Maintenance costs
• Revenue and • Wages
profits to football • Marketing and
cubs advertising costs
• Revenue and profit
to stadium owners
Social • Employment in the • Congestion on
area match days
• Custom to local • Litter
businesses • Noise
• Revenue to • Fall in property
transport values in the
companies immediate vicinity

Sources: Comprehensive Economics for CSEC

Longman Economics for CXC
Economics for CSEC Examination
Economics: Caribbean Secondary Education Certificate
Page 7