ECONOMIC SYSTEMSECONOMIC SYSTEMSAround the WorldAround the World

Learning Targets

4a. Understand the various forms of economic systems which exist in different societies and cultures throughout the world

4b. Describe the strengths and weakness of various forms of socio-political and economic systems, and their ability to meet basic human needs

What is an Economic What is an Economic System?System?

How ppl, societies, or nations satisfy How ppl, societies, or nations satisfy needs & wants of the peopleneeds & wants of the people

THROUGHTHROUGH

Incentives, choices, allotment of Incentives, choices, allotment of resources resources

Why Economic Systems?Why Economic Systems?

1)1) What to produce?What to produce?

2)2) How to produce?How to produce?

3)3) For whom to produce? For whom to produce?

How are Economic Systems Organized?

Who owns the resource?What decision making process is used to allocate the resources and products?What types of incentives?

Economic ResourcesEconomic Resources

Natural resourcesNatural resources

Human resourcesHuman resources

Capital resourcesCapital resources

Entrepreneurial resources Entrepreneurial resources

Scarcity – shortage of Scarcity – shortage of resourcesresources

Four Types of Economic Four Types of Economic SystemsSystems

TraditionalTraditional

Command Command

MarketMarket

MixedMixed

Transitional Transitional

Traditional EconomyTraditional Economy

Traditional customs/beliefs govern Traditional customs/beliefs govern economic decisionseconomic decisions

Farming, hunting, gathering, Farming, hunting, gathering, barteringbartering

Centered around local, family, Centered around local, family, ethnic unitsethnic units

EX: villages in Africa & S. Amer., Inuit EX: villages in Africa & S. Amer., Inuit tribes in Canada, Aborigines in Australiatribes in Canada, Aborigines in Australia

Traditional EconomyTraditional EconomyAdvantagesAdvantages

Ppl have specific Ppl have specific rolesroles

Security/certainty Security/certainty

Sense of belonging Sense of belonging

DisadvantagesDisadvantages

No technologyNo technology

Resistant to change, Resistant to change, improvementimprovement

Command EconomyCommand EconomyCentral gov’t makes decisions on “who, what, for whom” & Central gov’t makes decisions on “who, what, for whom” & determines how resources are useddetermines how resources are used

Public ownership (gov’t owns/operates industries & resources) Public ownership (gov’t owns/operates industries & resources)

Gov’t sets prices of goods & services, wages for workersGov’t sets prices of goods & services, wages for workers

Must meet set quotasMust meet set quotas

EX: Cuba, North Korea, former Soviet Union, ChinaEX: Cuba, North Korea, former Soviet Union, China

Command EconomyCommand EconomyAdvantagesAdvantages

Equal standard of Equal standard of living for everyoneliving for everyone

Needs provided Needs provided through gov’tthrough gov’t

Can quickly organize Can quickly organize shift in society’s shift in society’s resources & means of resources & means of productionproduction

DisadvantagesDisadvantagesShortages commonShortages common

No individual choices No individual choices in what is produced, in what is produced, how, & for whomhow, & for whom

No competition = no No competition = no incentive to improve incentive to improve quality, pricesquality, prices

No worker incentivesNo worker incentives

Market EconomyMarket Economy““Laissez-faire” = let them do as they pleaseLaissez-faire” = let them do as they please

W/out interference from gov’tW/out interference from gov’t

Production & distribution are governed by supply Production & distribution are governed by supply & demand, self-interest& demand, self-interest

Free enterprise (competition between companies) Free enterprise (competition between companies)

Most resources & industries owned by private Most resources & industries owned by private citizens (private ownership)citizens (private ownership)

Individuals & businesses Individuals & businesses make decisions, not gov’tmake decisions, not gov’t

Market EconomyMarket Economy

AdvantagesAdvantagesCompetition for better Competition for better quality, best pricesquality, best prices

Incentives for workersIncentives for workers

Economic freedoms & Economic freedoms & choicechoice

DisadvantagesDisadvantagesHuge rift between Huge rift between rich & poorrich & poor

Uncertainty in Uncertainty in employment, employment, production production

NO true market NO true market economies exist.economies exist.

Mixed EconomyMixed EconomyCombination of command & market Combination of command & market

Gov’t & individuals share decisionsGov’t & individuals share decisions

Individuals own resources, means of productionIndividuals own resources, means of production

Businesses privately owned, supply & demand Businesses privately owned, supply & demand generally sets prices, but gov’t may regulate generally sets prices, but gov’t may regulate economyeconomy

Gov’t can regulate production of certain goods, Gov’t can regulate production of certain goods, services offered, protects consumers/workersservices offered, protects consumers/workers

EX: Western Europe, U.S., AustraliaEX: Western Europe, U.S., Australia

(Russia is moving towards a mixed economy)(Russia is moving towards a mixed economy)

Mixed EconomyMixed EconomyAdvantagesAdvantages

Balance of needs & Balance of needs & wantswants

Attempt to balance Attempt to balance between rich and poorbetween rich and poor

Assists those in needAssists those in need

Fair competition?Fair competition?

DisadvantagesDisadvantagesGov’t regulation less Gov’t regulation less efficient?efficient?

Some limits on Some limits on individualsindividuals

Transitional EconomyTransitional Economy

Economy that is changing from Economy that is changing from command (planned) economy to command (planned) economy to market or mixed economymarket or mixed economy

Government Meets EconomicsGovernment Meets EconomicsCapitalism – Market or Mixed (econ. system)Capitalism – Market or Mixed (econ. system)

Some gov’t involvement (if mixed)Some gov’t involvement (if mixed)Competition, individual ownershipCompetition, individual ownership

Socialism – Command or Mixed (econ. system)Socialism – Command or Mixed (econ. system)Still some capitalismStill some capitalismMore gov’t involvementMore gov’t involvementMore equal distribution of wealthMore equal distribution of wealth

Communism – Command (econ. & pol. system)Communism – Command (econ. & pol. system)Collective ownership of means of production and Collective ownership of means of production and the services/goods producedthe services/goods producedNo individual ownership or wealthNo individual ownership or wealth

Global EconomicsGlobal Economics

Developed countries affect the developing Developed countries affect the developing countriescountries

What happens in a developing country can What happens in a developing country can have an effect on developing countries have an effect on developing countries