Introduction to Comparative Economic Systems

1. Introduction to Comparative Economic Systems Honors Non-Western Studies Mr. Tumino

2. Discussion… • How would you define economics? • What is an economic system? • How does economics impact you?

3. Comparative Economics Systems • The major economic systems are traditional economy, market economy, command economy and mixed economy. • There are also countries that are said to have developing economies, moving from a traditional to a market economy.

4. Definitions • Factors of production: • Those things necessary to produce goods and services. • Land • Labor • Capital (money, buildings, equipment, etc.) • Management

5. Definitions • Traditional economy: • An economic system in which the factors of production are settled by rules accepted as good and correct • Normally used to describe economic systems that pertain in societies with extensive subsistence agriculture • Used by members of industrialized societies to describe societies deemed "underdeveloped"

6. Definitions • Market economy: • An economy in which the prices of goods and services are determined in a free price system. • A system in which buyers and sellers exchange on the basis of supply and demand. • Also known as a capitalist economy.

7. Market Economy

8. Definitions • Command economy: • An economic system in which decisions regarding the factors of production are made by government leaders.

9. Command Economy

10. Command Economies • Two types of command economies: • Communist—strict government control of the entire society

11. Command Economies • Socialist—three main goals of this type of economy: • An equitable distribution of wealth and economic opportunity • Society’s control, through its government, makes decisions about public goods. • Public ownership of services and factories that are essential.

12. Definitions • Mixed economy: • A combination of market, command, or traditional economy. • A system in which free enterprise is affected by government regulations.

13. Mixed Economy

14. Economic Decisions • All economic systems must make three basic economic decisions: • What and how many goods and services should be produced • How should they be produced • Who gets the goods and services that are produced

15. Economic Decision Making • These decisions are made differently in the three major economic systems: • Traditional—habit and custom determine the rules. • Market—this economy is based on free enterprise, the idea that private individuals or groups have the right to own property or businesses and make a profit with only limited government interference. • Command—the government controls the economy is this system.

16. Economics and Trade • Countries with varying levels of economic development have become increasingly interdependent through world trade. • Geographers and economists classify all of the world’s economic activities into four types: • Primary economic activities—taking or using natural resources directly from the Earth • Secondary economic activities—raw materials are used to produce something new and more valuable.

17. Economies and Trade • Factors affecting trade: • The unequal distribution of natural resources • Differences in labor costs • Differences in education levels

18. Economics and Trade • Barriers to trade: • Tariffs • Embargos • A quota on the quantity of a product that can be imported from a country • Many governments around the world have moved toward free trade.

21. Gross Domestic Product • GDP - Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living.

23. Gross National Product • GNP - Gross National Product is the market value of all products and services produced in one year by labor and property supplied by the residents of a country

24. GDP vs. GNP • Gross National Product (GNP) is often contrasted with Gross Domestic Product (GDP). While GNP measures the output generated by a country's enterprises - whether physically located domestically or abroad - GDP measures the total output produced within a country's borders - whether produced by that country's own firms or not.