Lesson 5:

ECONOMIC SYSTEM AND

PRODUCTION POSSIBILITIES
FRONTIER
ECONOMIC SYSTEM
▪The economic system determines how
resources are being distributed to the
society.
▪There are four types of economic
system: traditional economy;
command economy; market economy;
and mixed economy (Argawal, 2020)
 THE TYPES OF ECONOMIC SYSTEM
Traditional Economy
▪ The basic economic
activities of this system are
engaged in agriculture such
as farming, fishing, and the
like. People are living in the
rural areas and get their
needs mostly on the natural
resources.
COMMAND ECONOMY
▪ large part of the economic
system is controlled by a
centralized power of the
government. Since the
government is a central feature
of the economy, they involve
everything from planning to
redistributing resources to he
society. It is among the theories
of politics and economy of Karl
Marx.
MARKET ECONOMY
▪ It is firms and households act in self-interest to
determine how resources get allocated, what goods
and services need to produce and who buys the
products.
▪ There is no government intervention in a pure market
economy. This mechanism is called laissez-faire or let
alone policy. It is a French word for “leave to be”, this
means that the government do not intervene the
market activities, hence, the policy is favorable to the
capitalists.
MIXED ECONOMY
▪ This system is commonly a mixture of market
economy and command economy.
▪ It is also known as Keynesian Economic System
or Dual Economic System.
▪ There is a government intervention while
everyone has freedom to choose and
opportunities to innovate. Individuals have the
freedom to enter the market.
TRADE-OFF AND OPPORTUNITY COST
▪Trade-off means exchange in which a person
sacrifices one or more things for getting a
particular product, service or experience.
▪Opportunity costs, one of the most important
concepts in economics. Whenever you make a
trade-off, the thing that you do not choose is your
opportunity cost
PRODUCTION POSSIBILITIES FRONTIER
▪The Production Possibilities Frontier
(PPF) shows the combinations of
goods and services that can be
produced and those that cannot
given the resources.