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10 Nov 2010
Business and Exchanges ± the Economic System
o Economic systems
o Businesses generate profits through exchanges
o A group of businesses, and other non-business organizations, the members
of which engage in exchanges in a regular and organized way, forms an
economic system
o How are the factors of production and the exchanges between businesses
organized in different economic systems?
o Who owns and manages the factors of production?
o On what basis are decisions made?
o How is the economic system regulated?
Command Systems
Market ± based Systems
Mixed Systems
o These distinctions are one way of understanding how economic systems are
organized and regulated
o Command Systems
o Centralized, usually government, ownership of the means of production
o Centralized, bureaucratic planning of business decisions
o Decisions based on goals other than market considerations
o Ideal type of the command system was communist governments, with
strong centralized planning
o Large business corporation is also a form of command or hierarchy system,
even though externally the corporation runs in a market economy
x All means of production owned by the colony
x No private ownership of any goods
x Planning of all activity by leadership groups
x Goals of the community are not economic or market-driven
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