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1.2 Economic systems - Coggle Diagram
1.2 Economic systems
Tradition-based economic system
In these societies, production was strictly ruled from very old customs
In order to benefit the community
Livestock farming was the main economic activity
The municipalities or town councils owned most of the pastureland
Tradition-based societies experienced little change
Preservating the community was more important
Than making more products for an economic growth
In the past economic systems were based on
Beliefs
In feudal Europe, artisans in cities formed guilds
Laws
Customs
Nowadays
Despite the power of the globalisation
There are some groups of people that their economy is based on tradition
Amazon
Africa
Arctic Circle
Tradition-based systems
Only allow for very limited economic growth
In many cases, production is restricted to
Self-consumption
Subsistence
They purchase very few goods and consume what they produce
They generate very little surplus
This means that production is limited to ahieving self-sufficiency
The mixed economic system
Most countries have a mixed economic system
The free market deals with basic economic problems
The state acts as an authority to help guarantee equal opportunities
Government collects taxes
This money is used to finance welfare state
Which invests
Social security benefits
And other kind of support
Public goods and services
Authority: the central planning system
In a free market system
The interactions between supply and demand
Determines the decisions on what to produce
In a central planning system
An authority, generally represented by the state, makes decisions
In economies sucha as these
The most important aim is to achieve greater social equality
To prevent the injustices caused by the unequal distribution of wealth
The state's predictions can turn out to be wrong
Production processes involve a very complicated bureaucracy
Capitalism and the free market system
Capitalism
Is a socioeconomic system based on the following factors
Private ownership
This includes physical and financial capital
Investment of capital
Is an economic activity in order to maximise the profit
Free market
Decisions regarding what to produce is determined by the economic agents through it
Price
This is the value asigned to a product or a service
Demand
Supply
Prices decrease
Supply is high but the demans is low, it creates surplus
Companies reduce prices when this happens
Prices increase
Demand is high but the supply is low, it creates shortage
This happens because consumers are wiling to pay more
Competition among economic agents
They produce a product or a service at the lowest possible cost
They pay the lowest possible price for the product or service
This economic agents decisions are not restriction-free, in the free market
This dynamic causes and unequal distribution of wealth among economic agents
So members of the demand side with more resources have greater influence
