Exploring Economic Systems

Exploring Economic Systems

An exploration of different economic systems and their impact on societies and individuals.

Basic Economic Systems

Traditional, command, and market economies are the three basic economic systems. Traditional economies are based on traditions and produce goods and services on a subsistence level. Command economies are operated by the government and goods and services are distributed unevenly. Market economies are based on private ownership and voluntary exchange. Prices rise and fall through supply and demand. Market economies give individuals freedom but can lead to exploitation of workers and the environment.

Multiple Choice

Which of the following is NOT a basic economic system?

• Traditional economy

• Command economy

• Market economy

• Mixed economy

​Mixed Economy

Most modern economies are a blend of command and market systems. Some countries are more controlled and others are more market-oriented. A mixed economic system protects private property and allows people to produce, buy, and sell goods and services as they want. Government has a role regulating some economic activities to make sure competition is fair and products are safe. Government can also impose taxes on businesses or individuals to achieve common societal goals.

​Market Economy

In a market economy, the resources, labor, and capital are owned and controlled by the individual or private business. People can create the product or service they want as long as it finds a demand in the marketplace. Demand, not the government, determines how much a product or service is produced and at what price it will be sold. Market economies are more unpredictable. Supply, demand, and prices rise and fall quickly. The people are motivated to make the economy work for them because they have control over it.

​Command Economy

In command economies, all elements of a country’s economy—resources, labor, and capital—are controlled by the government. The economy is planned and the distribution of goods and services is

determined by the government. They do this to keep the economy running efficiently to make sure the people are satisfied. In theory, this type of economy works well for the people because all aspects of the economy are under control of the government. In reality, it is very difficult to control an economy due to forces outside the government’s control, such as natural disasters and competition from other countries. People rely on the government to make the right decisions.

Multiple Choice

Which type of economy is characterized by the government controlling all elements of the economy?

• Command economy

• Market economy

• Mixed economy

• Traditional economy

Basic Economic Systems Overview

In command economies, the government controls all elements of the economy. In market economies, individuals and private businesses own and control resources. Most modern economies are a mix of command and market systems. Voluntary trade allows countries to specialize and trade goods and services. Trade barriers, such as tariffs and quotas, can be imposed to regulate trade between countries.

Poll

Which economic system in your opinion is better?

• Traditional

• Command

• Market

• Mixed

Voluntary trade benefits buyers and sellers.

Very few countries can produce all the goods and services needed to meet the demands of their people. Therefore, countries often specialize in producing a few goods or services to trade with other countries. Countries choosing to produce goods and services is called voluntary trade. It is the basis of global trade. When buyers and sellers trade voluntarily, they have a greater choice of goods and services to buy and sell. They also have more choices in selecting the best quality products and services. An example is Switzerland, which produces small machines.

​Trading Barriers

When countries trade, intense competition can follow. Sometimes this competition affects the relationship between countries in negative ways. Governments sometimes regulate the trade between their countriesto improve the situation. Say Country A is producing and selling large amounts of a certain product at a cheap price to country B. Companies in Country B also produce and sell the product but not a cheaply as Country A. These companies might ask their leaders to impose a tariff tax on the products from Country A. This tax will raise the price of Country A’s product closer to Country B’s product. The people in Country B

will more likely buy their products locally. This helps the companies in that country. The government imposing the tariff tax can use the tax money collected for other services.

​Trading Barriers

Open Ended

Using the chart on the previous slides what are some items that United Kingdom and Russia might trade with Germany? What do you think they might want in return from Germany?

​Trading Barriers

When countries trade, intense competition can follow. Sometimes this competition affects the relationship between countries in negative ways. Governments sometimes regulate the trade between their countries to improve the situation. Say Country A is producing and selling large amounts of a certain product at a cheap price to country B. Companies in Country B also produce and sell the product but not a cheaply as Country A. These companies might ask their leaders to impose a tariff tax on the products from Country A. This tax will raise the price of Country A’s product closer to Country B’s product. The people in Country B will more likely buy their products locally. This helps the companies in that country. The government imposing the tariff tax can use the tax money collected for other services.

​Solutions to Trading Barriers

When countries trade, intense competition can follow. Sometimes this competition affects the relationship between countries in negative ways. Governments sometimes regulate the trade between their countries to improve the situation. Say Country A is producing and selling large amounts of a certain product at a cheap price to country B. Companies in Country B also produce and sell the product but not a cheaply as Country A. These companies might ask their leaders to impose a tariff tax on the products from Country A. This tax will raise the price of Country A’s product closer to Country B’s product. The people in Country B will more likely buy their products locally. This helps the companies in that country. The government imposing the tariff tax can use the tax money collected for other services.

​Solutions to Trading Barriers

Another way countries can enact trade barriers is by imposing a quota on the number of products imported to their country. Let’s say a country is buying more products than it is selling. This creates what is called a trade deficit. More money is going out of the country than is coming in. To correct this,governments will impose a quota on the number or value of goods imported to or exported from their country. This will help protect companies within the country and better balance the trade.
When countries disagree, their governments may try to impose severe trade barriers to help settle the dispute. Sometimes countries enact an embargoes to punish other countries. One example is when the United States imposed a trade embargo on Cuba after it turned to communism. The U.S. hoped Cuba would reject communism and return to democracy. In another example, the United Nations placed

embargoes on trade with North Korea for starting a nuclear weapons program.

Multiple Select

Which of the following below is how countries overcome trading barrier issues ?

• Ban on trading

• Tax on goods

• Finding new countries to trade with

• Limiting the goods

Solutions to Trading Barriers overview

A quota on goods merely limits the number of products that can be imported into a country. A tariff tax still allows for trade to occur, but at

a higher price. An embargo severely limits trade between countries. Its purpose is to force one country to agree to another country’s demands. But it can also cause retaliation by the country being embargoed.

Factors Influencing Economic Growth

Literacy, investment, natural resources, and entrepreneurship are key factors that drive economic growth. Literacy enhances employment opportunities and prepares individuals to adapt to new trends. Investment in capital goods improves productivity and increases GDP. Natural resources must be managed effectively to sustain growth. Entrepreneurs create new businesses, generate jobs, and inspire social change.

Multiple Select

Which factor drives economic growth?

• Literacy

• Investment

• Natural resources

• Entrepreneurship

​Entrepreneurship

Entrepreneurs are people who hire workers and invest in capital goods to create new businesses. New businesses need new ideas, new materials, and new machinery to make their new products. This creates more jobs, sells more products, and expands new markets. Entrepreneurs also inspire social change by creating new inventions that replace old products that don’t work as well. The smartphone is a good example of combining a computer, telephone, and camera in one product. The smartphone has changed the way we use those three older products. Entrepreneurs can also invest in community projects and charities improving the quality of life. Microsoft co-founder Bill Gates set up a charitable foundation giving millions of dollars to world health. Facebook CEO Mark Zuckerberg has given millions of dollars to schools.

Poll

Which do you think is better being an entrepreneur or working a job with a salary

• Entrepreneur

• Salary paying job