Download Economic Systems

Economic Systems
Different Approaches to Economics in
Comparative Government & Politics
Economic Systems
• Economic System – an organized way of
providing for the wants and needs of a people.
Three Major Forms
1) Command Economy
2) Market Economy
3) Mixed Economy
Economic System
• Economic Systems – an organized way of
providing for the wants and needs of a people.
Command Economy
• Command (Planned) Economy – a central
government determines the price of goods and
services using a fixed price system.
• ADVANTAGES
1.
2.
3.
4.
Can change economic direction drastically
Stability; no ‘market downturns’
Eliminates individual profit motives
Can provide public services/goods at a low cost
Command Economy
• Command (Planned) Economy – a central
government determines the price of goods and
services using a fixed price system.
• DISADVANTAGES
1.
2.
3.
4.
Ignore the basic wants & needs of consumers
Incentives based on quotas, not necessarily quality
Large decision-making bureaucracy, inefficient
No rewards for individual initiative
Market Economy
• Market Economy – goods and services are
determined in a free price system set by supply
and demand.
• ADVANTAGES
1. High degree of individual freedom & consumer
satisfaction
2. Lack of government interference
3. Variety of goods and services
4. Able to adjust to change gradually
Market Economy
• Market Economy – goods and services are
determined in a free price system set by supply
and demand.
• DISADVANTAGES
1. High degree of uncertainty

Market Adjustments, Recessions, Depressions
2. Does not provide for everyone; basic goods &
services
3. Produces class division
Mixed Economy
• Mixed Economy – economic system that
combines free market elements with an active
governmental role.
• ADVANTAGES
1. Compromise of two extremes (market & command)
2. Provides assistance to those in need
3. Provide stability, while encouraging innovation
• DISADVANTAGES
1. Higher costs (taxes) for citizens
2. Role of Government? – difficult to balance
3. Somewhat less efficient
Measuring Economic Success
1. Gross Domestic Product (GDP) – all the goods
and services produced by a country’s economy in
a given year (excluding income earned outside the
country) .
Country
Gross Domestic Product (2009)
United States
$14.25 trillion
United Kingdom (Britain)
$2.165 trillion
Russia
$2.103 trillion
China
$8.767 trillion
Iran
$876 billion
Mexico
$1.473 trillion
Nigeria
$353.2 billion
Measuring Economic Success
2. Gross National Product (GNP) – like GDP, but also
includes income earned outside the country by
individuals and/or companies.
3. GDP/GNP per capita – divides GNP by the
population of the country
Country
GDP per capita (2009)
United States
$46,400
United Kingdom (Britain)
$35,400
Russia
$15,200
China
$6,500
Iran
$12,900
Mexico
$13,200
Nigeria
$2,400
Measuring Economic Success
1. Gross Domestic Product (GDP) – all the goods and
services produced by a country’s economy in a given
year (excluding income earned outside the country) .
2. Gross National Product (GNP) – like GDP, but also
includes income eared outside the country by
individuals and/or companies.
3. GNP per capita – divides GNP by the population of
the country
4. Purchasing Power Parity (PPP) – like GNP, however it
also takes into consideration what people can buy
using their income in their local economy.
5. The Gini Index – a formula that measures the
amount of economic inequality in a society.
Measuring Economic Success
4. Purchasing Power Parity (PPP) – like GNP,
however it also takes into consideration what
people can buy using their income in their local
economy as compared to prices in the U.S.
5. Human Development Index (HDI)– a formula that
measures the well-being of a country’s people by
factoring adult literacy, life expectancy, and
educational levels in addition to the GDP.
6. The Gini Index – a formula that measures the
amount of economic inequality in a society.
Trends of Global Economics
1) Economic Liberalization – the general
trend/movement of global economies toward
market economies.
– WHY? –
• (1) Belief that government is too big
• (2) Lack of success of command economies.
Trends of Global Economics
2) Globalization – the increasing interdependence
of economies, political systems, and societies
on a global scale through the utilization of
technological innovations.
ADVANTAGES
o
o
o
o
Rapid overall economic growth
‘Global Access’ to information, technology, capital
Spread of democracy and human rights
Sense of global citizenship
Trends of Global Economics
2) Globalization – the increasing interdependence of
economies, political systems, and societies on a
global scale through the utilization of technological
innovations.
DISADVANTAGES
o
Exploitation of poorer countries – Multinational Corporations
(MNCs)
o
o
o
Erosion of state sovereignty
Actions in one nation now affect all nations
o
o
o
MNC account for 1/3 world’s exports; top 10 MNCs have sales
greater than GDP of 170 countries; Pakistan nuclear test & Coke
SARS outbreak in China or Swine Flu in Mexico
Negative environmental impact
“Americanization” – spread of American culture – backlash?
Trends of Global Economics
3) Industrial vs. Post Industrial Value Shift –
– Modernism – a set of values that comes along with
industrialization
•
•
•
•
•
Secularism
Emphasis on reasoning
Materialism
Technology
Emphasis on freedom rather than collective equality
– Worker Distribution
•
•
•
Small Service Sector (technology, health care, finance, education)
Large Industrial Sector (factories, industry creating tangible goods)
Shrinking Agricultural Sector (farming, food creation)
Trends of Global Economics
4) Industrial vs. Post Industrial Value Shift –
– Post-Modernism – a set of values that that comes
along with post-industrialism
•
•
•
Quality of life over material gain
Preservation of the environment
Promotion of health care & education
– Worker Distribution
•
•
Large Service Sector (technology, health care, finance, education)
Shrinking Industrial Sector (factories, industry creating tangible
goods)
•
Very Small Agricultural Sector (farming, food creation)
Trends of Global Economics