Download 2016 Types of Economic Systems PowerPoint Lecture

2016 Types of Economic
Systems
Scarcity
• The limited supply of something
• There is not a single country in the world that has an
abundance of ALL the resources that its people need
and want.
• Because of this, the countries must make a plan of how
to use these limited resources.
• This plan is called an Economic System.
Factors of Production and Scarcity
• Scarcity – shortage of resources
• THINK BACK TO THE SCARCITY GAME: WHERE DID YOUR COUNTRY
EXPERIENCE SCARCITY?
• Economic Resources
• Natural Resources – raw materials found in nature that are used to
produce goods
• Human Resources – people’s knowledge, efforts, and skills used in
their work
• Capital Resources – used to produce goods and services (buildings,
materials, and equipment)
• Entrepreneurial Resources - recognize the need for new goods or
service
Why Economic Systems?
• Nations use economic systems to determine how to use their
limited resources effectively.
• Primary goal of an economic system is to provide people with a
minimum standard of living, or quality of life.
• Different types of Economic Systems
• Traditional Economy
• Market Economy/Free Enterprise
• Command Economy
• Mixed Economy
Traditional Economy
Traditional Economy: Definition and Key
Characteristics
• All economic decisions are based on customs, traditions, and beliefs of the past
• Religious and cultural values are more important than economics
• People will make what they always made and do the same thing as their parents
did
• Farming, hunting and gathering are done the same way as the generation before
• Fear change
• Economic activities are centered around the family or ethnic unit
• Men and women are given different economic roles and tasks
• The exchange of good is done through Bartering: trading without using money
Traditional Economy: Examples
• Found in rural, under-developed countries–
• Vanuatu
• Pygmies of Congo
• Eskimos & Indian tribes
• Belarus
• Villages in Africa
• Aborigines in Australia
• Inuit in Canada
• The Amish
• Advantages:
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Traditional Economy: Advantages and
Disadvantages
People have specific roles
Security in the way things are done
Little conflict between members of society because there is little competition
Everyone understands how things are done
• Disadvantages:
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Technology is not used
Difficult to improve
Differentiates the economic roles and status of men and women
Does not allow for growth and development
Changes are slow
There is little social mobility; your role is determined by birth
Individuals often have no control over environmental factors
Command Economy
Command Economy: Definition and Key
Characteristics
• The government (or central authority) determines what, how,
and for whom goods and services are produced.
• ALL economic decisions are made by the government.
• The government owns most of the property.
• The government sets the prices of goods.
• The government determines the wages of workers.
• No competition
• Heavy taxation
Command Economy: Examples
• Two types:
• Strong Command – where government makes all decisions
• Communism – China, Cuba
• Requires all productive resources to be owned and operated by the
government
• Permits little freedom
• Moderate Command – where some form of private enterprise exists but the
state owns major resources
• Socialism – France and Sweden
• Maintains medium government control
• Government controls key industries like utilities and transportation
• Allows private ownership in non-vital industries
• Allows competition in smaller, private sector
• Permits the right to choose career and place of employment
Command Economy: Advantages
• Advantages:
• Guarantees equal standard of living for everyone
• Distributes wealth among all of society
• Less crime and poverty
• Needs are provided for through the government
• Able to act quickly in emergencies
• Chooses jobs for everyone
• Can ensure stability because it does not coincide with
business cycles
• Products produced fulfill needs
Command Economy: Disadvantages
• Disadvantages:
• The system is very harsh to live under, and due to this, there are no
PURE Command countries in the world
• Often there is insufficient resource distribution: shortages and/or
surpluses
• Minimal choices
• Fewer choices of items
• No incentive to produce better product or engage in
entrepreneurship
• Can often lead to corruption among state planners
• Cannot easily adjust to change
Market Economy/Free
Enterprise
Market Economy/Free Enterprise: Definition
and Key Characteristics
• Also called a Free Market Economy or Free Enterprise Economy
• Economic decisions are made based on the changes in prices that occur as buyers and
sellers interact in the marketplace
• Businesses and consumers decide what they will produce and purchase and in what
quantities
• Decisions are made according to law of supply & demand
• Supply and demand of goods and services determine what is produced and the price
that will be charged.
• Free Enterprise is competition between companies and shifts the prices of goods and
services
• The government has no control over the economy.
• Private citizens answer all economic questions
Market Economy/Free Enterprise: Key
Characteristics
• In a truly Free Market Economy, the government
would not be involved at all.
• There would be no laws to make sure
goods/services were safe.
• There would be no laws to protect workers from
unfair bosses.
• Because of this, there are no PURE Market
Economies
Market Economy/Free Enterprise: Advantages and
Disadvantages
• Advantages:
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Competition to have the best products and services
Consumers can buy whatever they like in whatever amounts they want
Adjusts to change easily
Little government intervention
Great variety of goods and services
• Disadvantages:
• Huge rift between wealthy and poor
• Does not always provide basic needs for everyone in society, which can lead people to slip
into poverty
• May make it difficult for government to provide adequate social services
• There are occasionally market failures
• People can make choices which are harmful to themselves and to others
• Note: a true Market Economy does not exist---SO NO EXAMPLES!
Mixed Economy
Mixed Economy: Definition and Key
Characteristics
•Since there are no countries that are purely
Command or Market, most are Mixed Economies.
•Combination of a Market and a Command Economy
•Government takes of people’s needs
•Marketplace takes care of people’s wants.
Mixed Economy: Examples
Most nations have a Mixed Economy: United
States, England, Australia
• Economic Freedom: individuals have the
right to choose
• Competition: more than one producer
of goods/services insures choice
• Private Property: individuals have the
right to own their own property
including businesses
• Self-Interest: individuals make decisions
based on what is best for them
• Voluntary Exchange: individuals may
freely buy and sell goods
• Profit Motive: individuals are driven by
the desire to profit/make money
• Government Regulations: minimum
wage, labor hours, etc…
• Government limits certain choices:
cannot buy or produce certain goods or
services like drugs
• Government provides aid to the needy:
Medicare, Medicaid, welfare
Mixed Economy: Advantages and
Disadvantages
• Advantages:
• Balance of needs and wants met by government and in marketplace
• Advantages of Common and Market Economies
• Can focus on social welfare and political freedom as well as individual liberties
• Disadvantages:
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Citizens have to pay taxes
Disadvantages of Common and Market Economies
May not lead to optimal use of resources
Government intervention can hinder progress
Identifying the Development
of Different Countries
MDC
MDC: More Developed Country Defintion
•A developed country, industrialized country, or
"more economically developed country" (MEDC), is
a sovereign state that has a highly developed
economy and advanced technological infrastructure
relative to other less industrialized nations.
MDC: Key Characteristics
A developed economy refers to a country with a relatively high level of
economic growth and security.
Common criteria for evaluating a country's degree of development are:
•
per capita income or gross domestic product (GDP)
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level of industrialization
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general standard of living
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and the amount of widespread infrastructure.
Noneconomic factors are based upon the Human Development Index
(HDI), which quantifies a country's levels of:
•
education
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literacy
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health into a single figure.
MDC: Examples
•Examples: United States, Great Britain, Canada
•In the Scarcity Game, which countries would be
considered MDC and why?
NIC
NIC: Newly Industrialized Countries Definition
•Newly industrialized country (NIC) is a term
used by political scientists and economists to
describe a country whose level of economic
development ranks it somewhere between the
developing and first-world classifications.
NIC: Key Characteristics and Examples
• Countries undergoing rapid economic growth (usually export-oriented).
• Recent industrialization
• Social upheaval can occur as primarily rural, or agricultural,
populations migrate to the cities, where the growth of manufacturing
concerns and factories can draw many thousands of laborers.
• Examples: South Africa, Mexico, Brazil, India, and China
• In the Scarcity Game, which countries would be considered NIC and
why?
NIC Key Characteristics
• NICs usually share some other common features, including:
• Strong political leaders
• A switch from agricultural to industrial economies, especially in the
manufacturing sector
• Beginning to have an open-Market Economy , allowing Free Trade
with other countries in the world.
• Large National Corporation operating in several continents.
• Strong capital investment from foreign countries.
• Rapid growth of urban centers and population.
LDC
LDC: Less Developed Countries
Definition and Key Characteristics
• A lesser-developed country (LDC) is a country that is considered lacking in terms
of its economy, infrastructure and industrial base.
• Economy is primarily agricultural and little to no industrialization
• The population of a lesser-developed country often has a relatively low
standard of living, due to low incomes and abundant poverty.
• Also referred to as "emerging markets".
• Used to be known as Third World Countries
• Exhibit the lowest indicators of socioeconomic development, with the lowest
Human Development Index ratings of all countries in the world
LDC Examples
•Examples: Angola, Somalia, Sudan,
Afghanistan, Bangladesh, Yemen
•In the Scarcity Game, which countries would
be considered LDCs and why?