Download Economic Systems Mercantilism • Goal is to export more than you

Economic Systems
Mercantilism
• Goal is to export more than you import to build national wealth
• Most commonly a relationship between a mother country and her colonies
• Colonies send/sell raw materials to mother country and mother country sends back
finalize goods for purchase from colonies (ex: send lumber, receive chairs)
• Commonly used between 1500s and 1800s during time of colonialism
• Still seen in neo-colonial situations in Africa following the independence movements of
the 1950s
• Mother country gains wealth and access to resources
• Colonies are dependent upon mother country since they are only focused on developing a
few resources
Capitalism
• Also known as a market economy
• The means of production are privately owned and operated for profit
• Developed by entrepreneurs in Europe who took the risk of creating businesses in the
1500s/1600s
• Removes the government from controlling the economy although they do set tax and
tariff rates
• Goals of private enterprise are to make more money than you initially spent
• Driven by the demands of the consumer
• Supply and Demand economy: companies make the goods (quality, quantity, etc) based
on the demands of the people
• Competition promotes high quality and low prices
Socialism
• Focused less on the interests and rights of individuals and more on the interests of society
• Attempted to remove the gap between rich and poor created by capitalism
• Farms and businesses belong to all people not just one person
• Worldwide ideas that were attempted in Germany, Russia, Eastern Europe, and Africa in
the late 1800s and 1900s
• Seen as a “utopia” or perfect economy since everyone has an equal share of both work
and wealth
• Mixed market: free market driven by the consumer but also a command market that is
influenced by government controls
Communism
• Form of socialism supported by Karl Marx in which class struggle would lead to a
classless society
• Used in the 1900s by Russia, Eastern Europe, Cuba, North Korea, and China
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The class struggle between the “haves” and “have-nots” will result in the uprising of the
working class (Proletariat – rich working class)
• Command economy: government makes all economic decisions
• Limited production of consumer goods and an emphasis on industrial growth
• Revolutionary change: quick change that betters society
Definitions
• Scarcity: not having enough of something; Often affects an economy when there is not
enough of a good to trade or manipulate into a final product
• Diversity: producing a lot of goods; creates a wider variety of options to trade with other
countries and opens a nation up to having more trading partners
• Interdependence: mutual dependence of countries on goods, resources, and knowledge
from other parts of the world
• Economic indicators: a series of factors that reflect the success of the economy in a
country; includes factors such as building developments, economic size, growth rate,
currency, housing stats, unemployment rates, and exchange rates
• Gross Domestic Product (GDP): the total value of all goods and services produced by a
nation
• Standard of Living: measures the quality and availability of necessities and comforts in a
society
• Per Capita Income: the total national income divided by the number of people in the
nation; the rate of income per person in a country
• Productivity: the effectiveness of production determined by comparing the rate of output
per unit of input
• Mixed Economy: economic system with both private and state-run enterprises
• Capital: money or wealth
• Consumer goods: goods purchased by individuals for their own personal use
• Heavy Industry: manufacturing activities that use large volumes of raw materials (coal,
oil, etc.) to process into bulk products of higher value
• Deficit: gap between what a government spends and what it take in through taxes and
other sources of money; many governments practice deficit spending in which the
government spends more money even though it knows that it is not making enough
• Surplus: extra or excess; a financial surplus means a government has taken in more
money than it spent; surplus can also be related to growing more crops that a society
needs to feed its people
• Trade Gap: also known as trade deficit; situation in which a country imports more than it
exports
• Market Economy: the means of production are privately owned and operated for profit;
supply and Demand economy: companies make the goods (quality, quantity, etc.) based
on the demands of the people
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Inflation: economic cycle that involves a rapid rise in prices linked to a sharp increase in
the amount of money available
Recession: period of reduced economic activity; usually results in business failure and
unemployment
Depression: more severe and lasting a long time; usually seen in more than one aspect of
the economy; high rate of business failures and high levels of unemployment
Tariff: a tax on imports; high tariffs often influence people from buying goods made at
home since they are cheaper than the paying the tariffs on goods that are imported
Trade Barriers: something that prevents trade from taking place; physical trade barriers
that affected ancient civilizations such as mountains and deserts; modern trade barriers
such as regulation to restrict international trade, high tariffs, quotas
Prosperity: strong economy that produces a great profit for a nation
Debt: owing money to an individual or nation; most nations have a high level of national
debt but they continue to spend