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Economics
4 Types of Economies: Market, Command, Mixed, and Traditional
Traditional
People produce what they need to survive. They typically do work their parents and grandparents did. It is
based on custom and habit.
Command
Market
The government decides what to produce, how to produce it, and for whom to produce.
Market demand (supply and demand) determines what will be produced. There is little to no government
intervention.
Mixed
These economies are a blend or mixture of command and market. Because economies are placed on a continuum
between command and market, these economies fall in between but still lean more towards one side.
Almost all economies are Mixed
Investment in capital Goods and Human Capital
What are capital goods? Goods that are used in producing other goods (factories, machinery, raw
materials)
What is human capital? The skills, knowledge, and experience of an individual or population (education
and training are investments in human capital)
If a country invests in capital goods and human capital, then the GDP … increases
Why? An educated workforce with the right equipment makes more and better products which, in turn,
make people want to buy them.
There are physical trade barriers such as mountains, deserts, oceans
There are also economic trade barriers: Tariff, Quota, and Embargo
Embargo stops trading; ban on trading (no imports from Cuba or no toys from China)
Quota: a number limit on imports (only 5,000 cars can be imported)
Tariff: a tax or a fee on imports (adding $500 to each car imported from Japan)
On the other hand, specialization encourages trade (increases/promotes trade).
What is specialization? Making one product well, cheaply, and efficiently
Why would it encourage trade? It gives a country something that other countries want to buy or trade for.
What is currency exchange rate? A method where one country’s money is exchanged for another country’s money
Why do we need a system to exchange currency? Because not all countries have currency of equal value
Country
Nigeria
55
Description
The major industry is oil. It can be difficult to start a business because of corruption and government control.
However, the government is beginning to allow more private businesses.
South
Africa
64
This is the most developed economy in Africa. The major industry is mining. South Africa has a lot of private
businesses. Private businesses and consumers make decisions based on the market. However the government is
also involved and produces goods and services based on public needs.
Mixed
Israel
56
The major industries are high-tech manufacturing, financial services, and agriculture. Israel has a lot of
government ownership of business, but it is slowly privatizing companies. Private businesses produce goods based
on the market.
Mixed
Saudi
Arabia
46
The major industry is oil. Over 95% of the oil industry is owned by the government. Since the 1980s, the
government has been trying to increase private ownership.
Mixed
Turkey
51
The major industries are service, manufacturing, and agriculture. Since the late 1980s, Turkey has moved from a
government directed economy to more private enterprise.
Mixed
China
53
40% is run by the government with 60% being privatized. The major industry is manufacturing. In the past, China
was controlled exclusively by the government, but has in recent years the private sector has grown substantially.
Mixed
India
54
In the past, the government controlled the economy. Since 1991, India has expanded private ownership.
However, there is still a lot of bureaucracy (government/paperwork) and corruption involved in opening a
business. The major industries are engineering, computer science, and software and business process
outsourcing.
Japan’s economy is very market driven with supply and demand determining what will be produced. There are a
few industries that are highly government controlled such as agriculture. The major industries are automobiles
and electronics.
Mixed
Japan
73
North
Korea
2
Almost all economic activity is controlled by the government. The major industries are manufacturing and mining
which devote ¼ output to maintaining the military.
Pure Command
Economic System
Mixed
Mixed
Market
Command
Pure Market
What does GDP stand for? Gross Domestic Product
What does GDP mean? The value of all goods and services produced by a country in a set time; it measures the economic
health of a country.
What is GDP per capita? The average income of a household in one year
What are entrepreneurs? People who take risks to start their own business
Why are they important to an economy? They are creative and help the economy adapt to changing conditions
If governments do not allow entrepreneurship or make it difficult to start a business, then the GDP will most likely …decrease.
If governments allow and support entrepreneurship, then the GDP will most likely …increase.
Literacy rate
If a country has a high literacy rate, the standard of living is high.
If a country has a low literacy rate, the standard of living is low.
When literacy rate is high, the GDP is most likely high. However if the literacy rate is low, the GDP is
probably low.
What is OPEC? Organization of Petroleum Exporting Countries
What is the primary purpose of OPEC?
To control the price and production of oil
If supply is high and demand is low, then the price goes down.
If supply is low and demand is high, then the price goes up.