What Is an Economic System?
The equilibrium point is where the supply curve and
Economics - is a social science concerned with how
people satisfy their demands for goods (things you
can buy) and services (things people do for a fee).
Economics - is all about the flow of goods and
services between people.
An economic system (or economy) is a method used
by a society to allocate goods and services among its
people and to cope with scarcity.
Every economic system answers four basic questions.
They are the fundamental questions of economics.
Fundamental Questions of Economics:
 What goods and services are produced?
 What quantity of goods and services are
produced?
 How are goods and services produced?
 For whom are goods and services produced?
Types of Economic Systems
Two very different types of economic systems are
often used to compare how societies deal with the
fundamental questions of economics. These two
types of economic systems are the command
economy and the market economy.
In a command economy, the government controls
the production, allocation, and prices of goods and
services.
In a market economy, suppliers and consumers
control the production, allocation, and prices of
goods and services.
Voluntary exchange is a transaction in which both
suppliers and consumers believe they benefit.
Another name for the market economy is the free
enterprise system.
Supply and Demand
Supply- is the quantity of goods and services a
business is willing to sell at a specific price and a
specific time.
Demand- is the quantity of goods and services
consumers are willing to buy at a specific price and a
specific time.
Supply and Demand Curves:
A supply curve on a graph shows the quantity of a
product or service a supplier is willing to sell across a
range of prices over a specified period of time.
A demand curve on a graph shows the quantity of a
product or service consumers are willing to buy
across a range of prices over a specified period of
time.
A supply and demand curve is a graph that includes
both a supply curve and a demand curve.
the demand curve intersect.
The x-axis coordinate of the equilibrium point
identifies the equilibrium quantity.
The y-axis coordinate of the equilibrium point
identifies the equilibrium price.
Competition in a Market Economy
 Competition is common in a market
economy. People are free to start and operate
businesses that compete against each other,
so suppliers are often offering similar
products or services. Buyers are free to
compete against each other to buy products
they need and want.
Competition between Suppliers
 If a supplier lowers the price of a product or
service, consumers typically buy from that
supplier rather than from others.
Competition between Consumers
 In a market economy, there is not only
competition between suppliers but also
competition between consumers. When
consumers compete against each other to buy
a product, they push prices upward.
The profit motive is an incentive that encourages
entrepreneurs to take business risks in the hope of
making a profit.
Benefits of Profit
 Entrepreneurs who consistently make a profit
over time can build their own wealth and
ensure financial independence.
 Many entrepreneurs use profit to benefit
their existing businesses, start new ones, or
invest in the enterprises of others. Profit can
be used to grow a business,
The Global Economy
The global economy is the flow of goods and services
around the whole world.
Exporting and Importing
Exporting- is the business activity in which goods or
services are sent from a country and sold to foreign
consumers.
Importing- is the business activity in which goods and
services are brought into a country from foreign
suppliers.
Entrepreneurs and International Trade
 Entrepreneurs can benefit from international
trade by exporting goods or services that are
in demand in foreign countries.
Trade Barriers
Governments are often protective of the resources
within their borders.
A trade barrier is a governmental restriction on
international trade.

The most common trade barriers are tariffs and

quotas on imports. A tariff is a fee, similar to a tax
that importers must pay on the goods they import. A
quota is a limit on the quantity of a product that can
be imported into a country.

Foreign Exchange Rates

 Many types of money are in use around the
world. In general, each country or group of
countries has its own type of money.

Fair Trade
Fair trade is a policy encouraged by private
organizations with the goal of ensuring that small
producers in developing nations earn sufficient profit
on their exported goods to improve their working,
environmental, and social conditions.

Respecting Other Cultures

Entrepreneurs who wish to engage in international
trade need to show respect for the culture of the
people with whom they want to do business.
“Culture” includes language, beliefs, attitudes,
customs, manners, and habits.

The Local Economy

Effects of Entrepreneurship on the Local Economy
A local economy covers a limited area, such as a
community or town. Because many entrepreneurs
operate small businesses that sell primarily to local
consumers, entrepreneurship has a profound effect
on local economies. Entrepreneurs can benefit their
local economies in the following ways:
⦁ Purchasing materials and supplies from local
merchants
⦁ Opening an account at a local bank, credit union,
or other financial institution
⦁ Joining a local business association, trade group, or
civic organization that supports local economic
development
⦁ Paying local taxes that benefit schools and other
public services
⦁ Investing money in local businesses
⦁ Donating money, time, or goods to local charities
and organizations
⦁ Hiring local
⦁ Supplying goods and services to local consumers

Importance of Sustainability
It is important that economic development does not
harm society or the environment but ensures that
human and natural resources are maintained for
future generations. This is referred to as sustainable
economic development, or sustainability.