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ECONOMIC SYSTEMS Around the World 2010 Global Peace Index Based on 23 indicators: # of police, # of homicides, % of population in jail, potential for terrorist attacks, military expenses, and amount of weapon imports, etc. They are ranked on a scale from 1 to 5. 1 meaning a very high level of peace and 5 being a very low level of peace. What is an Economic System? How ppl or societies satisfy needs & wants THROUGH Incentives, choices, allotment of resources Economic Resources Natural resources Human resources Capital resources Entrepreneurial resources Scarcity – shortage of resources Why Economic Systems? Determine how to use scarce resources effectively 1) What to produce? 2) How to produce? 3) For whom to produce? Four Types of Economic Systems Traditional Command Market Mixed Traditional Economy Traditional customs/beliefs govern economic decisions Farming, hunting, gathering, bartering Centered around local, family, ethnic units EX: villages in Africa & S. Amer., Inuit tribes in Canada, Aborigines in Australia Traditional Economy Advantages Ppl have specific roles Security in way things are done Disadvantages No technology Difficult to improve Command Economy Gov’t makes decisions on “who, what, for whom” & determines how resources are used Gov’t sets prices of goods & services Must meet set quotas EX: Cuba, North Korea, former Soviet Union, China Command Economy Advantages Equal standard of living for everyone Less crime? Needs provided through gov’t Disadvantages Shortages common No individual choices No competition = no incentive to improve quality, prices Market Economy Production & distribution are governed by supply & demand Most resources owned by private citizens Free enterprise (competition between companies) Individuals & businesses make decisions, not gov’t Market Economy Advantages Competition for better quality, best prices Economic freedoms & choice Disadvantage Huge rift between rich & poor NO true market economies exist!!! Mixed Economy Combination of command & market Gov’t & individuals share decisions Gov’t regulates production of goods, services offered, protects consumers/workers Individuals own resources, means of production EX: Western Europe, U.S., Australia (Russia is moving towards a mixed economy) Mixed Economy Advantages Balance of needs & wants Fair competition? Disadvantage Some limits on individuals Citizens must pay taxes Government Meets Economics Capitalism – Market or Mixed Some gov’t involvement (if mixed) Competition, individual ownership Socialism – Command or Mixed Still some capitalism More gov’t involvement More equal distribution of wealth Communism - Command Collective ownership of means of production and the services/goods produced No individual ownership or wealth What about the Wealth Gap? The North/South Divide Developed Developing These countries differ in… Environment (resources) Historical development Government/politics Economic systems Trade policies & globalization Culture influences the above factors Global Economics Developed countries affect the developing countries What happens in a developing country can have an effect on developing countries Economic Nationalism A country’s economic well-being is related to its control of global wealth Politics on labor, production, wealth accumulation Coordinated w/social and political systems GDP accurate measure of country’s economic well-being? These take into account Economic well-being index inequalities, security, life standard of Human Development Index expectancy, living, consumption, etc. Globalization Increasing interdependence among nations Economic globalization is the interdependence among countries due to Trade Foreign investments (borrowing $, etc.) Foreign aid Has an effect on a country’s social and political life The World Bank International institution that gives loans to developing countries for programs The World Bank invested nearly $53 billion in developing countries last year. World Trade Organization WTO – organizes rules of trade between countries Part of United Nations – 1995 Freer trade, fair competition, economic reform Imports, exports, tariffs, etc.