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Transcript
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: • • • • 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: • • • • • • • 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: • • • • • 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: • • • • 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) • level of industrialization • general standard of living • and the amount of widespread infrastructure. Noneconomic factors are based upon the Human Development Index (HDI), which quantifies a country's levels of: • education • literacy • 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?