Lesson 4 Allocation and Economic Systems

LESSON 4: ALLOCATION AND ECONOMIC SYSTEMS
Have you experienced wanting to buy your favorite fruits but there is no supply?
This situation happens in some countries because of the problem of scarcity. In
order to address this problem, people should learn to set their priorities and be
more resourceful.
Allocation plays important role in addressing the problems of scarcity and

unlimited needs and wants. With the HELP of market, products and services are
produced and distributed so that people from different areas can have the chance
to buy goods to satisfy their needs.
THE ECONOMIC SYSTEM

- It covers the structure of governance composed of institutions and
mechanisms that deal with activities that answer basic questions on the
needs of an economy.
TYPES OF ECONOMIC SYSTEM

- There are 3 types of economic systems which describe the decisions of the
government in solving economic problems: traditional, market and command
economies.
1. Traditional Economy – this type of economy answers problems based on the
customs, traditions, beliefs and norms of the society. The society decides
on the goods and services to be produced and distributed based on the
traditions and customs. In short, all the economic activities and answers
to economic problems are influenced by customs and traditions. Example:
during the time of the “datus”, as leaders they decide on what goods and
serves will be produced.
2. Market Economy – Individuals and private sectors make decisions to answer
the WHAT? HOW? And FOR WHOM to produce? Questions in the economy. Market is
an arrangement between sellers and buyers to make a transaction.
3 systems that emerged during the 15th and 18th century

a. Feudalism – it is an economic and political system that dealt with
extensive land ownership. The basis of man’s power depends on the ownership
of land. It is about the relationship between the landlord known as feudal
lord and the vassals. Vassals provided service to the feudal lord like
military service, managing all the activities inside the manor and
protecting the feudal lord at all times. As payment for the services of the
vassals, a piece of land called FIEF was given to them. The manor was the
source of agricultural economy during the manorial system. Peasants
cultivate the lands inside the manor with the help of their fellow serfs,
who were tied with the lord’s land.
b. Mercantilism – Gold and Silver were very essential. Everybody wanted to

acquire more gold and silver to become powerful. During the 16th-18th
century, a country that had abundant supply of gold and silver became
powerful because these metals were considered the most precious and were
used as yardsticks for power and supremacy. Many countries in Europe
focused their attention on accumulating more gold and silver by colonizing
weaker nations.
c. Capitalism – the Industrial Revolution paved the way for the recognition
of rights of the private sector in developing the industries. Adam Smith in
his Laissez Faire doctrine underscore the important role of private sector
in economic development. This principle gave birth to one of economic
system called capitalism. Capitalism is an economic system in which the
ownership of factors of production, land capital, labor and entrepreneur-
is in the hand of private group of individuals. Private property and profit
motives are the foundation of capitalism. Any individual or group is free
to engage in business activity, they can dictate the price of commodity and
produce the desired goods and services. This system is called free
enterprise or free market system.
Characteristics of Capitalism
1. Ownership of Resources and Wealth: all citizens have the freedom to
accumulate wealth and utilize own capital. Private ownership of property
and business is allowed without limitations.
2. Decision-making: Decision-making is decentralized. What does it mean?
Private individuals and company make their own decisions regarding their
business. What to produce and how much to produce are decided by the owners
according to their goals.
3. Pricing: pries of the commodities are based on the prevailing price in
the market. Prices changes depend on the behavior of the consumers and the
producers. In a private business enterprise, pricing is anchored to its
business goals as well as on the consumer’s expectations.
C. Command Economy – the government decides in addressing the economic

problems under this type of economy. Economic decisions comes from a
central authority and people are expected to abide by those decisions.
There are 3 economic system that belongs to this economy, were all economic
activities were dictated by the government.
1. Communism: Karl Marx believed in the equality of people in society. He
openly expressed his desire to have a classless society and to give the
working class or the so called proletariat the power to lead the economy.
Communism is an economic system in which the state controlled and owned all
the industries and resources of the country. A Central Planning Board plans
and decides on the different economic activities. There is no private
property. Individuals work according to their abilities and paid according
to their needs.
2. Socialism: This economic system is described as combination of

capitalism and communism. Main industries are controlled by the state and
individuals are allowed to own the small industries in which the state can
interfere. Socialism started in France and Great Britain in 1830. Robert
Owen, a capitalist who shared the sentiments of the poor and pitiful
laborers, first used the term socialism. He established the Utopian
Socialism based on the principle of Thomas More’s Utopia or ideal society.
They believed that Utopia can be attained if there is equitable
distribution of wealth, resources and production in the country.
Cooperation is more important than competition. Collective ownership of
resources is done under this system in order to have equality of people in
society. The government through the welfare state provides all the needs of
the people who do not have the capacity to fulfill it. Socialist would like
to avoid the abuses and injustices to have the people particularly to the
laborers. People receive the same and equal benefits from the state.
3. Fascism: Resources and industries are controlled by state under a

dictator. Benito Mussolini started fascism in Italy in 1922. Under this
system, the dictator decides all the activities in the state- political,
social, and economic. Importation of goods is strictly prohibited as well
as strikes and labor unions. Production focuses on the needs of the
economy. “The people are for the state, not the state for the people” is
the battle cry in the fascist society.
COMPARISON OF DIFFERENT ECONOMIC SYSTEMS
Areas of Capitalism Socialism Communism Fascism
Comparison
Decision Decentralized State and Centralized Dictator
Making on Private Private
Production Individual Individual
Ownership of Private Collective State Dictator
Resources Individual
Source of Market Market/Plan Planned Planned
Information
Motives Profit Material Social Social

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LESSON 4: ALLOCATION AND ECONOMIC SYSTEMS

Allocation plays important role in addressing the problems of scarcity and

THE ECONOMIC SYSTEM

TYPES OF ECONOMIC SYSTEM

3 systems that emerged during the 15th and 18th century

b. Mercantilism – Gold and Silver were very essential. Everybody wanted to

C. Command Economy – the government decides in addressing the economic

2. Socialism: This economic system is described as combination of

3. Fascism: Resources and industries are controlled by state under a

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