Download Economics Introduction and Systems

Economic Systems
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SS6E5 The student will analyze different economic
systems.
a. Compare how traditional, command, and market,
economies answer the economic questions of 1-what to
produce, 2-how to produce, and 3-for whom to produce.
b. Explain how most countries have a mixed economy
located on a continuum between pure market and pure
command.
c. Compare the basic types of economic systems found in
the United Kingdom, Germany, and Russia.
What is Economics?
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 Economics is the production, distribution,
and consumption of goods and services.
 There are three main economic systems:
 Traditional
 Command
 Market
 Most countries around the world have a
mixed economy (a mixture of the three
systems listed above).
Essential Economic Vocabulary
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 Production – The process of manufacturing or growing something.
 Distribution – The delivery of products to various places.
 Consumption – The use of goods and services.
 Goods – Items that are sold.
 Services – Work that helps others. Ex: Hospital.
 Gross Domestic Product (GDP) – The total value of goods and
services produced in a country every year.
Traditional, Command, Market
and Mixed Economies
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 The type of economic system utilized by a
country (traditional, command, market, or mixed
economies) answer three important economic
questions:
 What to produce? (What products are
produced in the country?)
 How to produce? (How are products
produced in the country?)
 For whom to produce? (Who are you making
the products for?)
Command Economy
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 In a command economy, the government
answers the three economic questions.
 Characteristics of a command economy:
 Little individual freedom
 No competition between businesses.
 Businesses are not for profit.
 Consumers have few choices.
 Government determines jobs and sets
prices of goods and services.
 Examples: No “pure” Command
Economies; North Korea (closest to
true Command Economy).
North Korea's leader Kim Jong
Un greets students at a school
in Pyongyang.
Traditional Economy
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 In a traditional economy, culture and
customs answer the three economic
questions. People do things the way they
always have.
 Characteristics of a traditional economy:
 Found in rural areas, such as the
Eastern Russia.
 Technology is primitive.
 Activities are centered around the
needs of the people.
 Men and women typically have
different roles (Example:
Hunter/gatherer)
Indigenous tribes in Eastern Russia
have a traditional economy, typically
based around agriculture.
Market Economy
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 In a market economy, consumers answer
the three economic questions.
 An economic system based on free
trade and individual choices.
 Characteristics of a market economy:
 Resources are owned by individuals
 Competition for profits drives this
system.
 Supply and demand determine
price of goods and services.
 No government intervention.
 Examples: No “pure” Market
Economies; Hong Kong (closest to
true Market Economy).
Shops on Carnaby St. in London.
Mixed Economy
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 An economic system that
combines elements of all three
economic systems.
 In reality, all economies are
mixed.
 For example, in the USA, the
government sets quotas and
tariffs to control the price of
certain goods and services
(command), but individuals can
determine what to produce,
what types of work to do,
what to buy, etc. (market)
Economic Continuum
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North Korea
2.3%
(Most repressed
economy in the world)
World
Average
60.7%
United States
75.4%
Hong Kong
88.6%
(11th most free
economy)
(Highest for 22
consecutive years)
0
50
100
Pure
Command
Mixed
Economy
Pure
Market
Economic Case Study #1 – United Kingdom
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 What to produce?
 The UK, similar to the US, is largely a service based
economy but also has an extremely efficient
agricultural sector (farming).
 How to produce?
 Industries have much freedom in the UK. There have been
recent moves to partially-nationalize certain industries
like banking.
 For whom to produce?
 The private sector produces goods and services for
domestic and international markets based on the market
price system.
Where is the UK on the
Economic Continuum?
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 Where would the UK fit on the Economic Continuum?
 Far to the market side of center on the continuum.
 According to the 2016 Index of Economic Freedom, the
UK received an overall score of 76.4%.
0
50
Pure
Command
Mixed
Economy
UK
76.4%
(10th out of
178 countries)
100
Pure
Market
Economic Case Study #2 – Germany
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 What to produce?
 Germany is primarily an export-based economy focusing on
manufacturing and commodities.
 How to produce?
 German businesses are largely privately owned and
independent.
 There is still an issue with updating the Eastern German economy
to compete and operate on par with Western Germany.
 For whom to produce?
 Germany survives largely based on their exports, which are
determined by global markets. Western Germany still transfers
billions of dollars to Eastern German states to help modernize
and update factories and production lines.
Where is Germany on the
Economic Continuum?
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 Where would Germany fit on the Economic Continuum?
 Slightly below UK on the market side of the continuum.
 According to the 2016 Index of Economic Freedom,
Germany received an overall score of 74.4%.
0
50
Pure
Command
Mixed
Economy
Germany
74.4%
(17th
out of
178 countries)
100
Pure
Market
Economic Case Study #3 - Russia
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 What to produce?
 The Russian government is still largely involved with many
aspects of the economy and must approve any investment
larger than 50 million rubles.
 How to produce?
 Making large scale production changes in Russia is difficult
due to the immense bureaucracy. There is a movement towards
modernizing factories and agricultural equipment, but it is
slow.
 For whom to produce?
 Russia has fairly low to moderate tax rates. Increasingly
Russia is trying to allow for market interaction, but high tariffs
and minimal protection of private property make this difficult.
Where is Russia on the
Economic Continuum?
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 Where would Russia fit on the Economic Continuum?
 Russia is in the center of the continuum.
 According to the 2016 Index of Economic Freedom,
Russia received an overall score of 50.6%.
0
Pure
Command
50
100
Mixed
Economy
Pure
Market
Russia
50.6%
(153rd out of
178 countries)
Europe Economic Continuum
16
World
Average
60.7%
0
Pure
Command
Russia
50.6%
(153rd out of
178 countries)
50
Mixed
Economy
UK
76.4%
(10th out of
178 countries)
Germany
74.4%
(17th
out of
178 countries)
100
Pure
Market
Latin America Economic Continuum
17
World
Average
60.7%
0
50
100
Pure
Command
Mixed
Economy
Pure
Market
Canada Economic Continuum
18
World
Average
60.7%
0
50
100
Pure
Command
Mixed
Economy
Pure
Market
Australia Economic Continuum
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World
Average
60.7%
0
50
100
Pure
Command
Mixed
Economy
Pure
Market