Economic Systems

An economic system is the way a nation allocates its resources among its citizens. Every country’s economy is defined by who owns and controls the basic factors of production — the resources required to create goods and services.

The Five Factors of Production

Factor	Description
Labour	Human effort applied to production
Capital	Money, tools, buildings, and equipment used in production
Entrepreneurs	Individuals who take on risk to combine the other factors into a business
Natural Resources	Raw materials from the environment (land, minerals, water, etc.)
Information	Specialized knowledge, expertise, and economic data — unique because sharing it doesn’t reduce the supply

Information is the fifth and most modern factor. Unlike land or labour, sharing information doesn’t reduce your supply of it — if two people exchange ideas, each person ends up with two ideas.

Types of Economic Systems

System	Who Controls Factors	Real-World Form
Command Economy	Government controls all or most factors and makes production decisions	Communism (government owns and operates all industries)
Market Economy	Individuals control factors; production decisions made through supply/demand	Capitalism (markets decide what, when, for whom)
Mixed Market Economy	Blend of both	Most real economies, including Canada

No pure command or pure market economy exists in practice. All governments regulate business to some degree; the debate is always about how much.

How It Appears Per Course

ADMN 201

Canada’s mixed market economy is the backdrop for all business activity covered in the course. Understanding who controls the factors of production explains why Canadian businesses operate the way they do — with private ownership but also government regulation, Crown corporations, and public services.

Cross-Course Connections

BusinessGovernmentRelations — the mixed model requires constant negotiation between private enterprise and government
PrivateEnterprise — market economies rely on private enterprise as the engine of production
SupplyAndDemand — in a market economy, supply and demand are the mechanism that allocates factors

Key Points for Exam/Study

• Five factors of production: labour, capital, entrepreneurs, natural resources, information (often the one students forget)
• Command → government control; Market → individual control; Mixed → Canada
• No economy is purely one type
• Deregulation and privatization are the main mechanisms by which command economies shift toward mixed/market systems
• In input markets, firms buy resources; in output markets, firms sell goods/services

Open Questions

• Where does Canada sit on the command ↔ market spectrum compared to other G7 nations?

graph TD
    A[Economic System] --> B[Command Economy]
    A --> C[Market Economy]
    A --> D[Mixed Market Economy]
    B --> E["Government controls all factors<br/>(Communism)"]
    C --> F["Individuals control all factors<br/>(Capitalism)"]
    D --> G[Canada: blend of both]
    A --> H[5 Factors of Production]
    H --> I[Labour]
    H --> J[Capital]
    H --> K[Entrepreneurs]
    H --> L[Natural Resources]
    H --> M[Information]