OWNING AND CONTROLLING THE

FACTORS OF PRODUCTION

Brief Summary:
• Economic Systems
• Command Economies
• Market Economies
• Supply and Demand
• Four Degrees of Competition
 ECONOMIC SYSTEMS

The way different countries try to

answer basic economic questions:

 who should own or control the factors of

production?

 what should be produced, with the available

factors?
 ECONOMIC SYSTEMS - 2 TYPES

Command or Planned Economies

Governments own/control factors of prod’n
Governments make all / most of decisions

Market Economies
Individuals own/control factors of production
Individuals make all / most of decisions
COMMAND OR PLANNED ECONOMIES

economic systems (i.e. countries) where the

government owns/controls most of the
factors of production and makes most
economic decisions.
COMMAND/PLANNED ECONOMIES
- 2 TYPES
Communist Economies:
Government owns/controls all the factors of
production makes 100% of economic decisions.
Examples: currently very few, probably North Korea

Socialist Economies:
Government owns/controls majority of the factors
of production, including principal industries, makes
most of economic decisions.
Example: Cuba
 MARKET ECONOMIES
- 2 TYPES
Capitalist Economies:
Individuals owns/control all factors of production
Individuals make 100% of economic decisions
Examples: none

Mixed Market Economies:

Individuals own/controls majority of factors
Individuals make most of economic decisions
Governments regulate and tax, run some business
Example: Canada, USA, UK, France
 CANADA IS A "MIXED"
ECONOMY
Majority of factors (farmland,
forests, mines) owned by
private individuals.

Most of decisions about factors

(how many workers to hire,
how much to pay them, how
much technology to buy) made
by individuals.

But, government does intervene

and is involved in the economy
(through taxation, and
regulation, and delivery of
certain services).
 MIXED ECONOMY – SIMPLE
EXAMPLE
I decide where I work, I negotiate
my salary with the University.
But, the Government taxes me.

Walmart (owned by the Walton

Family) sits in the shopping mall
next to the LCBO (owned by the
Ontario Government).
HOW MARKET ECONOMIES WORK

Market:

Not a place - a bunch of

activities.

e.g. housing market, labour

market

Exchanges between buyers

& sellers
 HOW MARKETS WORK: SUPPLY &
DEMAND

The Law of Supply

• Producers will offer more of a product as its price increases, less as it
drops.

The Law of Demand

• Consumers will purchase more of a product as its price drops, less as it
rises
SUPPLY & DEMAND
 DEGREES OF COMPETITION

Not all markets are the same:

• Ability of buyers to negotiate "good" prices, depends on number of

sellers in the market and the degree of differentiation of the product

• Some markets have lots of sellers

• Some markets have few sellers

• Some markets have only one seller

 PERFECT COMPETITION

Lots and lots of suppliers

All are small
More or less the same
Must sell at the same
price
Example: carton of milk
 MONOPOLISTIC COMPETITION

• Lots and lots of suppliers

• Most are small
• Most more or less the same
• Some are big, can differentiate
themselves
• Most sell at the same price
• Big suppliers can charge extra
• Example: coffee shops on one level
with Starbucks and Tim’s on another
 OLIGOPOLY

Small number of suppliers (e.g. 4

or 5)
All are "large"
Each tries to differentiate
themselves
Industry hard to enter, hard to exit
They watch each other, follow each
other
Example: Canadian banking
industry
 MONOPOLY

Only one supplier

(By definition) 100% market share

Can set whatever price it likes

(except if government regulates it)

Example: LCBO
 DIFFERENTIATION

Is one supplier’s product very

different (in the mind of the
market) from that of other
suppliers?

Commodity: where there is no

apparent difference in products;
price is set by the laws of supply
and demand