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