Economic systems monday 3 11


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Economic systems monday 3 11

  1. 1. Economic Systems Unit 12 Notes
  2. 2. Different Economic Systems <ul><li>Scarcity refers to the limited supply of something </li></ul><ul><ul><li>Every country must deal with the problem of scarcity since no country has everything that its people need/want </li></ul></ul><ul><li>Every country must develop an economic system to determine how to use its limited resources to answer the three basic economic questions: </li></ul><ul><ul><li>What goods/services will be produced? </li></ul></ul><ul><ul><li>How will goods/services be produced? </li></ul></ul><ul><ul><li>Who will consume the goods/services? </li></ul></ul><ul><li>The way a country answers these questions determines its economic system </li></ul>
  3. 3. Traditional Economy <ul><li>An economic system in which economic decisions are based on customs and beliefs </li></ul><ul><li>People will make what they always made & will do the same work their parents did </li></ul><ul><li>Exchange of goods is done through Bartering : trading without using money </li></ul>
  4. 4. Traditional Economy <ul><li>Who decides what to produce? </li></ul><ul><ul><li>People follow their customs and make what their ancestors made </li></ul></ul><ul><li>Who decides how to produce goods & services? </li></ul><ul><ul><li>People grow & make things the same way that their ancestors did </li></ul></ul><ul><li>Who are the goods & services produced for ? </li></ul><ul><ul><li>People in the village who need them </li></ul></ul>
  5. 5. Traditional Economies <ul><li>Examples: </li></ul><ul><ul><li>Villages in Africa and South America </li></ul></ul><ul><ul><li>the Inuit tribes in Canada </li></ul></ul><ul><ul><li>the caste system in parts of rural India </li></ul></ul><ul><ul><li>the Aborigines in Australia </li></ul></ul>
  6. 6. Command System <ul><li>Government makes all economic decisions & owns most of the property </li></ul><ul><li>Governmental planning groups determine such things as the prices of goods/services & the wages of workers </li></ul><ul><li>This system has not been very successful & more and more countries are abandoning it </li></ul>
  7. 7. Command Economy <ul><li>Who decides what to produce? </li></ul><ul><ul><li>Government makes all economic decisions </li></ul></ul><ul><li>Who decides how to produce goods and services? </li></ul><ul><ul><li>Government decides how to make goods/services </li></ul></ul><ul><li>Who are the goods and services produced for? </li></ul><ul><ul><li>Whoever the government decides to give them to </li></ul></ul>
  8. 8. Command System <ul><li>Countries with communist governments have command economies </li></ul><ul><ul><li>Examples: Cuba, former Soviet Union, North Korea </li></ul></ul><ul><li>The government of Australia controlled one part of the economy in the past -- government-owned companies controlled telecommunications </li></ul><ul><ul><li>Government set the price for having a phone, the cost of calls, and wages were the same in all parts of the country </li></ul></ul><ul><ul><li>In 1989, the company was made into a private business with stockholders owning the company </li></ul></ul>
  9. 9. Market Economy <ul><li>An economic system in which economic decisions are guided by the changes in prices that occur as individual buyers and sellers interact in the market place </li></ul><ul><ul><li>Most of the resources are owned by private citizens </li></ul></ul><ul><li>Economic decisions are based on Free Enterprise (competition between companies) </li></ul><ul><ul><li>Important economic questions are not answered by government but by individuals </li></ul></ul><ul><ul><li>Government does not tell a business what goods to produce or what price to charge </li></ul></ul>
  10. 10. Market Economy <ul><li>Who decides what to produce? </li></ul><ul><ul><li>Businesses base decisions on supply and demand and free enterprise (PRICE) </li></ul></ul><ul><li>Who decides how to produce goods and services? </li></ul><ul><ul><li>Businesses decide how to produce goods </li></ul></ul><ul><li>Who are the goods and services produced for ? </li></ul><ul><ul><li>consumers </li></ul></ul>
  11. 11. Market Economy <ul><li>There are no truly pure Market economies, but Australia’s is close: </li></ul><ul><ul><li>It is considered one of the most free economies in the world </li></ul></ul><ul><ul><li>Businesses operate without too many rules form the government </li></ul></ul><ul><ul><li>People are free to start a business and can do so quickly </li></ul></ul><ul><ul><li>Courts use the laws of Australia to protect the property rights of citizens </li></ul></ul>
  12. 12. <ul><li>In a truly free market economy, the government would not be involved at all </li></ul><ul><ul><li>There would be no laws to protect workers form unfair bosses </li></ul></ul><ul><ul><li>There would be no rules to make sure that credit cards were properly protected </li></ul></ul><ul><li>Many societies have chosen to have some rules to protect consumers, workers, and businesses (MIXED) </li></ul><ul><ul><li>These rules reduce the freedoms that businesses have, but they also protect the workers and consumers </li></ul></ul>
  13. 13. Mixed Economy <ul><li>Market + Command = Mixed </li></ul><ul><li>There are no pure command or market economies. To some degree, all modern economies exhibit characteristics of both systems and are often referred to as mixed economies. </li></ul><ul><ul><li>Most economies are closer to one type of economic system than another </li></ul></ul><ul><li>Businesses own most resources and determine what and how to produce, but the government regulates certain industries </li></ul>
  14. 14. Mixed Economy <ul><li>Who decides what to produce? </li></ul><ul><ul><li>businesses </li></ul></ul><ul><li>Who decides how to produce goods and services? </li></ul><ul><ul><li>Businesses, but the government regulates certain industries </li></ul></ul><ul><li>Who are the goods and services produced for? </li></ul><ul><ul><li>consumers </li></ul></ul>
  15. 15. Mixed Economies <ul><li>Most democratic countries fall in this category (there are no truly pure Market or Command economies). </li></ul><ul><ul><li>Examples: Brazil, Mexico, Canada, UK, US, Germany, Russia, Australia, etc. </li></ul></ul>
  16. 16. Australia’s Economy <ul><li>One of the freest economies in the world </li></ul><ul><li>It is technically a mixed economy, but it’s close to market because there are very few rules to restrict the market </li></ul><ul><li>Government does not own major industry or business </li></ul><ul><ul><li>Prices are set by the agreement of buyers and sellers rather than by government rules </li></ul></ul>
  17. 17. Australia’s Economy <ul><li>People are free to own their own businesses and property </li></ul><ul><ul><li>They decide what they want to produce </li></ul></ul><ul><li>Buyers and sellers are able to agree on prices, and competition between sellers helps to keep the prices good for buyers </li></ul><ul><li>Business owners and consumers can depend on good laws to protect them </li></ul><ul><ul><li>Courts are considered fair and honest </li></ul></ul><ul><li>It is very easy to start a business in Australia – the paperwork usually takes less than a week! </li></ul>
  18. 18. Economy Continuum Command Market Cuba Russia Germany US Australia UK