ECONOMIC SYSTEMS

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Terms to Know Capitalism Free Market Command Traditional Mixed Capital Resources Land Human Resources

Natural Resources Entrepreneur Trade Barriers Tariffs Quotas Embargo Currency Exchange Specialization

Three Problems

Every society has three problems:

1.How do we decide who gets what resources ?

2. Who uses which resources

3. What happens to those people who can’t get what they want, given limited resources?

Three Economic Questions What and how much

will be produced? . (Scarcity- A limited amount of materials to supply an unlimited demand)

How will it be produced? There are many ways to produce a desired item.

For whom will it be produced?

There are only FOUR TYPES

There are many words used to describe economics; but there are really only four types-Traditional, market, mixed and command.

Market EconomyAn economic system in which individuals own and operate the factors of production. There are really NO complete market economies AKA: Free

enterprise, Capitalism

The closest is Hong Kong

Market EconomiesResources are owned and controlled by individuals.

Economic decisions are made by individuals competing to earn profits

Individual freedom is considered very important

Economic decisions are made by the basic principals of supply and demand

Profit is the motive for increasing work rather than quotas.

Market Economies¨ Also called capitalist

economies

¨ There are many economic freedoms

¨ There is competition among businesses

¨ Competition determines price which increase the quality of the product

TYPES OF ECONOMIC SYSTEMS

Definition Associated Terms Examples in Practice

1) Market economy An economic system in which individuals own and operate the factors of production.

Free enterpriseCapitalism None really, Hong

Kong is the closest

2) Command economy

3) Traditional economy

4) Mixed economy

Command Economy An economic

system in which the government owns and operates the factors of production.

AKA: Socialism, Communism

Cuba, Sudan, North Korea, Saudi Arabia

Command EconomiesThe government or other central authority makes decisions and determines how resources will be used

Change can occur relatively easily

There is little individual freedom.

There is no competition

Businesses are not run to create a profit

Command Economies

¨ Consumers have few choices in the market place

¨ Factories are concerned with quotas

¨ Shortages are common because of poorly run factories and farms.

¨ The government dictates the job in which you work.

Command EconomiesThe government sets the prices of goods and services

Examples of command economies: Cuba, North Korea and Vietnam

TYPES OF ECONOMIC SYSTEMS

Definition Associated Terms Examples in Practice

1) Market economy An economic system in which individuals own and operate the factors of production.

Free enterpriseCapitalism None really=Hong

Kong is the closest

2) Command economy An economic system in which the government owns and operates the factors of production.

SocialismCommunism

CubaNorth Korea

Laos

3) Traditional economy

4) Mixed economy

Traditional economy

An economic system based upon customs and traditions. Economy is based upon agriculture and hunting. Traditional economies are found in rural, non-developed countriesSome parts of Asia, Africa, South America and the Middle East have traditional economiesCustoms govern the economic decisions that are madeTechnology is not used in traditional economies.

AKA: Non-Industrialized, Agrarian societies Chad, Haiti, Rwanda, parts of India, Indonesia

Traditional economy

Farming, hunting and gathering are done the same way as the generation before.Economic activities are usually centered toward the family or ethnic unitMen and Women are given different economic roles and tasks.

TYPES OF ECONOMIC SYSTEMS

Definition Associated Terms Examples in Practice

1) Market economy An economic system in which individuals own and operate the factors of production.

Free enterpriseCapitalism None really, but

Hong Kong is the closest

2) Command economy An economic system in which the government owns and operates the factors of production.

SocialismCommunism

CubaLaos

North Korea

3) Traditional economy An economic system based upon customs and traditions. Economy is based upon agriculture and hunting.

Non-IndustrializedAgrarian societies

ChadHaiti

RwandaParts of Indonesia

and India

4) Mixed economy

Mixed economy

Economy where the government and people both are involved in the running of the economy=has features of market and command.

Mixed EconomiesGovernment and individuals share the decision making processGovernment guides and regulates production of goods and services offeredIndividuals own means of productionProtects consumers and workers from unfair policiesMost effective economy for providing goods and services

People & Govt work together

Command or Market Economies?

There are no simple Market or Command economies.

Most economies have some government intervention like: minimum wages, social security, and regulatory policies are examples of government involvement.

China maintains control of many of the factories, but today allows private ownership.

The United States government allows private ownership, but controls wages and more

TYPES OF ECONOMIC SYSTEMS

Definition Associated Terms Examples in Practice

1) Market economy An economic system in which individuals own and operate the factors of production.

Free enterpriseCapitalism Really none-

closest is Hong Kong

2) Command economy An economic system in which the government owns and operates the factors of production.

SocialismCommunism

CubaNorth Korea

Laos

3) Traditional economy An economic system based upon customs and traditions. Economy is based upon agriculture and hunting.

Non-Industrialized

Agrarian societies

ChadHaiti

Rwanda

4) Mixed economy An economic system that has features of both market and command economies.

There are many nations that fall into this category, the United States, Japan, Britain, and Canada. There are no real associated terms/

Gross domestic product (GDP)

The total amount of money that a nation makes in a year after expenses.GDP tells us how developed a nation is.

b

Gross Domestic Product Per Captia

For our purposes this year we will look closely at GDP per capita-or how much money a person makes in a year.

This is always an average-total money divided by the population.

Factors of ProductionThere are Four TypesHuman Resources (Human Capital) Capital ($$$)

Natural Resources

Entrepreneur

Human Resources (Human Capital)

The health, education, experience, training, skills and values of people. Employees-humans needed because machines cannot do all the jobs.

Building a Workforce

How a country manages it productive resources makes a big difference in the strength of its economy.

Investing in HUMAN CAPITAL will pay off for years to come. As humans increase their knowledge they are capable of completing more complex tasks which are more valuable to businesses. They can also make more $$$

Capital Resources

Resources made and used to produce and distribute goods and services: examples include tools, machinery and buildings

Natural Resources

“Gifts of nature” that can be used to produce goods and services. AKA: LandThere are 2 types of natural resources: Renewable and Non-renewable.Natural resources includes soil timber, oil, minerals, and other goods taken more or less from the Earth.

Entrepreneur

One who draws upon their skills and initiative to launch a new business venture with the aim of earning a profit. Often a risk-taker, see opportunity when others do not.

Entrepreneur

Why start your own business?

Profit is a company's earnings after all expense are paid.

Profit provides incentive for entrepreneurs. Making money, pride in your idea and product

Trade BarriersA trade barrier is a general term that describes any government policy or regulation that restricts international trade.

These barriers make sure that local businesses are not destroyed by foreign products.

The barriers can take many forms, including:

Quotas, Embargo, Tariffs

Tariffs

1. A tariff is a tax on goods when they cross a national border.

2. A tariff makes sure that prices of foreign and local made products are competitive so that both sellers can compete.

Quotas

An import quota is a trade barrier that limits how many of a good can be imported into a nation at a given time.

Quota’s protect local farmers and businesses and keeps competition alive.

EmbargoAn embargo is the prohibition of trade with a certain country, in order to isolate it and to put its government into a difficult internal situation, given that the effects of the embargo are often able to make its economy suffer from the initiative.The embargo is usually used as a political punishment for some previous disagreed policies or acts.

Specialization or Division of Labor

Each person specializes in one occupation, to become the best at that job as possible, while others do the same with other occupations. Basically, it's a working society that does many different jobs. Example: A few people do farming, a few people do pottery, and a few people are blacksmiths. The society works together to make the society wealthier and more efficient.

Currency Exchange

Currency ExchangeExchange rates are an important consideration when making international investment decisions. The money invested overseas incurs an exchange rate risk. Exchange rates have an affect on the economics of the nation.

Affects the prices of imported goods.

Affects the overall level of price and wage inflation.

Influences tourism patterns-people go where their $ is worth more

Will influence consumers’ buying decisions and investors’ long-term commitments.

Personal Money Management

Money is the medium of exchange to buy goods and services.

Your income provides you with money to spend on whatever you choose.

Personal Money Management

People use CREDIT to buy something now and pay for it later.

When you use CREDIT, you have to pay the amount you borrowed plus and additional amount of interest.

Banks make money from interest payments –

interest is a fee paid for the use of someone else’s money.

Making Your Money Grow! Putting money in a

bank or credit union can make you EARN interest.

Saving money allows you to increase your money by INVESTING.

Making Your Money Grow! Ways to Invest Your Money:

Stocks and Bonds Real Estate Natural Resources Collectibles Business

(your own or someone else’s)

Supply and Demand

https://www.brainpop.com/math/dataanalysis/supplyanddemand/

Study Island

Custom Material

Basic Economy Questions 20 questions

Bibliography Federal Reserve of New York.

http://www.ny.frb.org/education/fx/foreign.html

Retrieved March 13, 2009

Trading Around the World, Indiana Department of Ed. 2009.