4 th Form – POB

Business and types of Economic systems

Objectives

Understand the element of an discuss the difference between

economy each of the three systems.
Definition of a economic system

“A means by which governments organize and distribute available

resources, services and goods across a geographic region or
country.”
Source:
https://corporatefinanceinstitute.com/resources/knowledge/eco
nomics/economic-system/
3 economic systems in which business
operate and their objectives:

Free Mixed Planned/

economy economy economy

AND
Definition of a free market
A free market is one where voluntary exchange and the laws of supply
and demand provide the sole basis for the economic system without
government intervention. (Investopedia)
Source link: https://www.investopedia.com/terms/f/freemarket.asp

Entrepreneurs decide what to produce, when to produce and for whom

to produce.
 Video:
How The Free match Market Really works!
Link:
https://www.youtube.com/watch?v=2v5lPmo
fZx8
Q&A on the Free market video.
1) Does the context of the video remember you of any relatable to the
today’s business people/ governments?
2) Who makes the decisions in a free economy?
3) Do the governments interfere in the affairs of business in this type
of economic system?
Advantages and disadvantages of a free
economy
Advantages Disadvantages
• Little to no government • Unequal distribution of income
intervention • Wasteful competition exist
• Consumer sovereignty in the • Monopolies (One company
market produces this product/service for
• Each stakeholder (consumers, the entire nation, eg- Barbados
producers and Light and Power) will exist.
entrepreneur)profits. • Public welfare will not be
• These parties above have freedom maximised because of high social
of choice cost.
• The market forces determines
price
Advantages and disadvantages of a planned
economy
Advantages Disadvantages
• Economic stability as the state • Loss of consumer sovereignty
controls and plans • A disincentive to work and innovate
• Wasteful competition does not exist • Bureaucracy and red tape
in the market
• Production and the allocation are
efficient as the government is better
able to allocate resources efficiently
• Wages are determined by the state,
so less inequality of income
• The welfare of citizens is maximised
 State the various economic
systems that exist.

Who makes the decisions in a

free economy?
Quick Test

What is the role of the

government in a mixed system?
End of Class