3 Major Types of

Economic Systems
Economic System
• Refers to the way in which the decisions about producing goods
and services are made within a given society and the rules that
govern distribution.
Market Economy
• Consumers’ behavior drives the production. The higher the
demand the higher the price.
• The government does not intervene in the running of the
economy beyond setting up the basic, large- scale, stable
framework for the market to operate in.
• The government owns no economic resources and is not an
active player in the market.
Command Economy
• Or Planned Economy
• The decisions of the government drive the production.
• If the government decides that certain goods are to be
produced, they get produced. The prices are also set centrally
by the government.
• The state owns all the economic resources and is either the
only or the predominant player in the market.
Mixed Economy
• There is a private or market sector, where the private-
ownership, supply and demand and profit motive rules of the
market economy apply, but the government intervenes in the
running of this sector by enforcing regulations and often price
controls and subsidies for certain industries or specific
businesses.
Five Economic Factors
Supply and Demand
• Great impacts a nation’s Gross Domestic Product (GDP), which
is the combined value of all goods and services produced by a
country in a given year.
• The higher the demand for goods and services, the greater the
need for workers to produce them, leading to economic growth.
Interest Rates
• Fluctuation in interest rates can have an impact on consumer
purchasing.
• When interest rates are high, consumers may be less inclined
to borrow money to buy a new home or car.
Inflations
• Higher Inflation is typically accompanied by higher prices, so
consumers may be less willing to buy non- essential or luxury
items.
• If wages do not rise at the same rate of inflation, people actually
lose money.
• When inflation rises, the value of the $ decreases, so consumer
buying drops accordingly.
Unemployment
• The more people who are out of work, the less money that is
circulated into the economy through purchase of goods and
services.
• Even the threat of unemployment has an impact, as workers
who fear losing their jobs are less inclined to spend or invest
their money.
Foreign Exchange Rate
• In the United States, when the value of $ is high in relation to
other countries’ currencies, the more goods and services we
are able to import.
• In contrast, a higher value of the $ means that other nations
may be less inclined to import products form the U.S
Basic Economic Problems
of the Country
• UNEMPLOYMENT
•POVERTY
•POOR QUALITY OF INFRASTUCTURE
•INCOME INEQUALITY
Unemployment
• UNEMPLOYMENT 6% - October 2014 6.6% - January 2015
COMMON CAUSES
• The number of people entering the job market has been greater
than the number of jobs created.
• The rural-urban migration increases due to employment
opportunities.
• May of the unemployed individuals are college graduates.
WHAT CAN BE DONE TO SOLVE
UNEMPLOYMENT PROBLEM?
• 1. Appropriate economic policies for labor-intensive industries.
• 2. Improve the educational system of the country especially in the
rural areas
• 3. Minimize rural-urban migration by improving the economic
environment in rural areas.
• 4. Proper coordination between government and the private sector to
solve the problem of job mismatch.
• 5. Slowing population growth. Philippine growth must increase faster
than the population. Limit the size of families.
• 6. Provision of more investment opportunities to encourage local and
international investment.
POVERTY
Common Causes
• Increase in population
•Increase in the cost of living
•Unemployment
•Income inequality
WHAT CAN BE DONE TO SOLVE THE
POVERTY PROBLEM?
• 1. Reduce unemployment
• 2. Appropriate policy on labor income
• 3. Provision of unemployment benefits for those who will be
unemployed due to natural or man made calamities. Ex.
Typhoon, Bombing of terrorists, Earthquake
• 4. Increase social services like education, health care and food
subsidies for sustainable poverty reduction
• 5. Appropriate policy on labor income. Self- existing
SustainableSubsistence
POOR QUALITY OF INFRASTRUCTURE
• 91ST OUT OF 144 COUNTRIES ON POOR
INFRASTRUCTURE QUALITY LOST ABOUT $250 BILLION IN
ECONOMIC GROWTH
WHAT CAN BE DONE TO IMPROVE THE
QUALITY OF INFRASTRUCTURE?
• 1. The government shall implement fiscal reform program
• 2. Continue reform in key sectors- particularly power, roads and
water – to improve cost recovery, competition, and institutional
credibility and to sharply reduce corruption.
• 3. Improving central oversight of the planning and coordination
of investments
• 4. Focus on investments through public-private partnerships to
achieve faster delivery of service
INCOME INEQUALITY
• Income is the money that an individual earned from work or
business received from investments.
•Income inequality – refers to the gap in income that exists
between the rich and the poor
MAJOR CAUSES OF INCOME INEQUALITY
• 1. Political culture “ palakasan” “utang na loob” Ex. Voting for
the wrong person during election
• 2. Indirect taxes – poor people shoulder this taxes like the Value
Added Tax – 12%
• 3. Income Taxes Minimum Wage – No Tax A little more than
minimum wage – 32% TAX
WHAT CAN BE DONE TO SOLVE THE
PROBLEM OF INCOME INEQUALITY
• 1. Policies to enforce progressive rates of direct taxation on
high wage earners and wealthy individuals.
• 2. Direct money transfers and subsidize food programs for the
urban and rural poor
• 3. Direct government policies to keep the price of basic
commodities low
• 4. Raise minimum wage
• 5. Encourage profit sharing