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Basic Economic Systems
Types of Economies in Countries of the World
and
How Governments Run Their Countries When it
Comes to Resources (economics and money)
What is Economics ?
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Defined as the social science that describes
and analyzes how people/society choose
from resources and decide how to satisfy
their wants and needs.
There is no limit to the amount or kinds of
things people want.
The limits are based on the available
resources and factors of production – what
can be produced
Factors of Production
~ determines what can be produced ~
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Natural Resources
Land
Capitol
Risk takers/entrepreneurs
Government control / type economic
system
The Basic Problem
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What goods and services are to be
produced?
In what quantities?
How are they going to be produces?
Who will receive and consume those
goods and services?
4 Main Types of
Economic Systems
 Command
Economy
 Market Economy
 Mixed Economy
 Traditional Economy
Command Economy
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The government controls the economy
– It’s role is to run everything.
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All Resources are owned by the
government
– Resources defined: The total means available
for economic and political development and
production profit Examples: raw material like
minerals or oil, other assets like the labor
force.
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How the resources are used is determined
by the government
Command Economy Contd.
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People have no say in how things are ran.
Example: former Soviet Union before it fell
and was reorganized
Market Economy
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The government lets the economy be free
and does not get much involved.
– It’s role is to let the economy be ran by the people.
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Most economic decisions are left up to
individual consumers (people who buy things)
and companies who make and sell products
or provide services
– Examples: Nike, Walmart, carpenters, mechanics
Market Economy Contd.
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A free, private enterprise economy
governed (ran) by the laws of supply and
demand
It permits an open exchange of goods
(shoes, gas, house building, etc.) between
those who make or provide the goods, and
those who buy or use the goods.
Example: The United States
Mixed Economy
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The government regulates the economy
– It’s role is to regulate but not control. It has
some say but not all.
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A combination of command and market
economic systems
Market forces control most consumer
goods (shoes, gas, construction, etc.), but
government directs industry in need areas.
– Examples: farming, or healthcare
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Example: Canada
Traditional Economy
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An economic system in which economic
decisions are made based on customs,
beliefs, religion and habits.
Advantages over other systems include:
– there is little friction among members
because relatively little is disputed.
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Disadvantages include:
– It restricts individual initiative and has a lack
of advanced goods, new technology, and
growth.
Traditional Economy Contd.
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Used in the poorest areas of the world
– African tribes
– Was used by Native Americans
– Also found today in some parts of South
America, Asia, and Africa.
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There, people still make clothing and
shelter almost exactly the same way as
they did in the past.
Little is produced; there is little to go
around.
Countries Have 1 of 3 Main
Development Statuses
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Development Status defined:
– how well a country is built up economically
and how well it takes care of its citizens.
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Highly Developed
Developed
Developing
Highly Developed Countries
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A country whose per capita income is very
high by world standards. Many people have a
good amount of money.
– Per capita income defined: the total national
income divided by the total number of people in
the nation
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Most people enjoy a high standard of living live well, are healthy and fed.
Life expectancy is longer
Highly Developed Countries
Contd.
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The economy is strong and is highly
technology diversified (many forms of)
It has a high per capita gross domestic
product (GDP).
– GDP defined: The total market value of all
the goods and services produced within
the borders of a nation during in a year.
Highly Developed Countries
Contd.
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The government is stable.
Health care is available to all citizens
(although the same level of care may
not be available to all citizens)
Examples: Canada, The U.S.
Developed Countries
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A developed country has a relatively low
standard of living compared to highly
developed countries.
People live less well, many struggle
financially and don’t have much food, or
well built homes.
The government is stable and
health care is available to many but not all
citizens.
– Depending on your social class and where you
live (how easy it is to get to the care)
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Example: Mexico
Developing/Underdeveloped Countries
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A developing country has an extremely low
standard of living.
Most people are very poor and have little
or no food, and very poor shelter.
The government may be corrupt or non
existent.
Health care is not as available and many
people are ill. Life expectancy is very low
Examples: Zambia in Africa (many other
small African countries), as well as many
others all over the world
Life Expectancy is an Indicator of How
Developed a Country is
Classification of Countries
divide the nations of Earth into
three broad categories.
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The terms First World, Second World,
and Third World have been used to
divide the nations of Earth into three
broad categories.
These terms are not used as much
today, but you may see them
occasionally.
First World Countries
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Highly Developed
More economically advanced, and
industrialized countries
Often considered the westernized
countries
First World Countries Contd.
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Characterized as having/being:
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Low birth and death rates
Highly industrialized
High average income
Stable government
Urban (city) populations
Developed and diversified Technology
• computers, advanced communications etc.
– Market economy
• Supply and demand
– Or Mixed economy
• Gov. regulates
– Good class mobility
• People can make a better life for themselves
First World Countries
Second World Countries
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Developed countries
– More developed than 3rd world/developing
countries but not as far along as 1st world
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Somewhat advanced,
Socialist countries with a planned economy
and government state control.
– Example: China, North Korea
– The term has almost disappeared, and socialist
countries are today attempting to develop free
market economies and a degree of democratic
government.
Second World Countries Contd.
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Characterized as having/being:
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Birth and death rates are dropping
Average income is increasing
Government becoming more stable
Population is becoming urban
Poor communication, outdated technology
Command Economy
• Government ran, poor distribution of resources
– Little class mobility
• Small upper and middle class, large lower class
Third World/ Developing Countries
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The relatively "undeveloped" and
predominantly poorer countries of Asia, Africa
Latin America, and some in the Middle East
The poorest nations of the world.
– Most are in debt to Western banks and
governments or international lending
organizations.
– Many depend on international aid to meet the
basic needs of their population.
Third World Countries Contd.
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Characterized as having/being:
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Low levels of living, low-income per capita
Little or no education programs
Widespread poverty and starvation.
Economies largely based on agriculture
Often a high population growth
High birth and death rates
Unstable government or no gov.
• Often at war over power
– Little or no technology
– Huge poor population, small rich population
– Traditional economy (little economic
organization) or Command economy (government
makes economic decisions)
Classification of Countries According to
the Human Development Index
Green = 1st world, Yellows/tans = 2nd world, Reds = 3rd world
Thanksgiving
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List “3 things” you are thankful for.
Write 3 sentences explaining why you
are (should be) thankful for living in the
United States of America.
The needs of 800 million people in
the world are not being met.
Why ?
Needs of the World
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4 Main Reasons why many people in
the world are not getting their basic
needs met.
Reason 1
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Resources on Earth are not evenly
distributed.
– Some regions are rich in resources, others
have very little or not the variety which is
needed.
Reason 2
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The people in power (government) in
the nation do not distribute the
resources throughout the population.
– There are a few people who have control
of all the resources = few rich people and
many poor people.
Reason 3
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Countries/nations rich with resources
don’t always share their resources with
those countries who need them.
Reason 4
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There are not enough resources for all
the people who live in the
country/nation.
– There may be overpopulation.