Economic Systems Unit 12 Notes Different Economic Systems

Economic Systems Unit 12 Notes

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? – For whom will the goods/services be produced? • The way a country answers these questions determines its economic system.

Traditional Economy • an economic system in which economic decisions are based on customs and beliefs • People will make what they always have made & will do the same work their parents did. • exchange of goods is done through bartering - trading without using money

Traditional Economy • Who decides 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. • For whom are the goods & services produced? – people in the village who need them

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

Command Economy • The government makes 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.

Command Economy 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. – The 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.

Command Economy • Who decides what to produce? – The government makes all economic decisions. • Who decides how to produce goods and services? – The government decides how to make goods/services. • For whom are the goods and services produced? – whomever the government decides to give them to

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. – The government does not tell a business what goods to produce or what price to charge.

Market Economy • Who decides what to produce? – Businesses base decisions on supply and demand free enterprise. • Who decides how to produce goods and services? – Businesses decide how to produce goods. • For whom are the goods and services produced? – consumers

Market Economy • There are 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 from 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.

• In a truly 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.

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.

Mixed Economy • Who decides what to produce? – businesses • Who decides how to produce goods and services? – businesses, but the government regulates certain industries • For whom are the goods and services produced ? – consumers

Mixed Economies • Most democratic countries fall in this category. (There are no truly pure market or command economies. ) – Examples: Brazil, Mexico, Canada, UK, US, Germany, Russia, Australia

Australia’s Economy • one of 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

Australia’s Economy • People are 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. – The courts are considered fair and honest. • It is very easy to start a business in Australia – the paperwork usually takes less than a week!

Economy Continuum Command Cuba Market Russia Germany UK US Australia