The Nature and Purpose of Economic Activity

• What should be produced in the economy?
• How should production be organised?
• For whom should production take place?

What. How. Whom.

W. H. W.

There are Four main economic systems:

• A subsistence economy
• Free Market economy
• Command economy
• Mixed economies

• Little specialisation and trade
• Low productivity = low incomes = poor standard of living
• Generally live in family groups and grow thier own crops - are mostly self-sufficient
• Little surplus production to export

• Economic decisions made through the free market mechanism
• What to produce is decided by profitability
• High demand = increased prices = increased profitability
• High prices and high profits indicates the producers to increase production
• The quantity supplied responds to the needs and wants expressed through price mechanism
• Consumer acts as the 'sovereign'.

• All economic decisions are made by the government
• Requires economy planning by the State
• The price mechanism has no active role
• Is meant to benefit all the citizens of the country

• A combination of free market and command economy
• Requires a private and public sector
• Majority of countries use a mixed economy
• In order for an economy to become mixed:
  • Privatisation of state industries
  • Encourage foreign investment

• Infinite wants but limited resources. 

• Provide goods and services to satisfy needs and wants.