Understanding economic resources and economic systems is essential to lessening problems

Factors of production
A shortage of resources is called scarcity A basic economic problem of every society is how to manage its resources. To meet the needs and wants of its people, a society must produce goods and services The means to produce them are called economic resources or factors of production.

Natural resources
The materials found in nature are called natural resources Natural resourses become factors of production when we use them to produce goods. The economy of many countries are based on natural resources Some resources like wheat and cattle are renewable. They can be reproduced.

 Other resources are limited or nonrenewable ,like coal, iron and oil. The amount of natural resoucces available to a society has a direct effect on its economy.

Human resources
One of the biggest problems facing many nations today is not a shortage of labour but a shortage of skilled labour.

Capital resources
Capital resources are the things used to produce goods and services like buildings , materials and equipments. As the wants and needs of people change, so do the needs of capital resources.

Three questions that most economic systems answer

What should be produced? How it should be produced? For whom it should be produced?

Major types of economic systems

Traditional Command Market Mixed

Traditional economy
Systems in which economic systems are based on customs and beliefs that have been handled down from generation to generation. Individual roles and choices are defined by the customs of elders and ancestors. These economies are usually based in societies of hunters and gatherers. Sharing is a part of these economies.

 It answers the 3 basic questions: Things are done the way the have always been done Economic decisions are based on customs and beliefs often religious handled down from generation to generation.

Traditional economy
Examples Inuit of North America Aboriginies of Australia

 Advantages : Everyone knows what role to play. Little uncertainty of what and how to produce, for whom it is usually themselves. Life is generally stable, predictable and continuous.

Disadvantages: Discourages new ideas/technology Lower standard of living Punishes people who break rules.

Command economies
In a command economy a central authority makes the key economic decisions. A command economy is also called a planned or managed economy. Government decides who will work, where they will work and what will be made. Finally government decides who will receive goods and services. For example: North Korea, Cuba

 Advantages: Because the government has total control over production and its factors, these economies can change rapidly. What ever is needed most will be produced. There is no uncertainty. People are told how and when to work. Free education, health care and public services. Guarantees everyone equal standard of living.

 Disadvantages Economies designs to meet needs not wants. No incentive to work hard. People dont often loose their jobs, so they do the bare minimum to get by. Large bureaucracy means slow decision making, raises cost of production, lacks flexibility. There is no incentive for entrepreneurship when you cant run your own business.

Market economies
It is a system in which individuals own factors of production and make economic decisions through free interaction while looking out of their own and their families best interest. The people and firms act in their own best interest. Allow buyers and sellers to come together to exchange goods or services. Example: Germany

Advantages Overtime can adjust to change. Individual freedom Little government interference Decentralized decision making Variety of goods and services High consumer satisfaction Freedom to choose career, spend their income how they wish , own private property, take risks and earn profits.

 Disadvantages : Doesnt provide basic needs for all members Doesnt provide enough services people highly value. High degree of uncertainty for workers and business.

 Can fail if three conditions are not met: 1. Reasonable competitive markets. 2. Resources able to move one activity to another. 3. Consumer access to information to make wide choices. 4. Government helps to ensure these.

Mixed economies
Most nations have mixed economy, a combination of market and command economy. The state takes care of peoples needs and the market takes care of peoples wants. Example: United Kingdom - Italy - Canada - Japan - Germany - Australia

Points of difference
1. 2. 3. 4. 5. 6. 7. 8. 9. Competition Efficiency Prices Government intervention Licensing Adjustment to change Variety of goods and services Consumer satisfaction Authority to make decisions