Economic Systems Throughout the World

Economic Systems Economic Systems Throughout the Throughout the

WorldWorld

Human wants are unlimited, but resources are not,

they are scarce.

In economic terms, what is a WANT?

Economic System

An economy, or economic systemeconomic system, is the way a government makes choices about how the nation will use its resources to produce and distribute goods and services that will satisfy the needs and wants of its citizens and /or the government itself.

Resources, also called factors of production, are all the things used in producing goods and services.

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The Factors of Production

Product

Natural Resources

HumanResources

Capital Resources

The basic resources available to a society are:

• Natural Resources- refers to everything on Earth that is in its natural state, or Earth's natural resources.

• Human Resources- refers to all the people who work in the economy.

• Capital Resources-refers to the things that are themselves produced and then used to produce other goods and services. Examples: tools, equipment, computers, desks, trucks, buildings

Three Economic QuestionsThree Economic Questions

All economies must answer three questions:

1. What goods and services will be produced?

2. How will they be produced? 3. For whom will they be produced?

In economic terms, what are the

Three Economic Three Economic QuestionsQuestions???

The Economic ProblemThe Economic Problem

How do societies answer the three basic economic questions considering they ALL have limited resources?

To solve the problem, every society has some system that transforms that society’s scarce resources into useful goods and services.

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Three Economic Systems

• Traditional Economy

• Command Economy

• Market Economy

In economic terms, what are the

Three Types of Three Types of EconomiesEconomies???

• In a traditional economy, most of the economic decisions are made based on custom and on the habit of how such decisions were made in the past.

• They use a system known as bartering• Goods and services are exchanged or traded instead of

using cash as a payment in a traditional economy• As areas become more urbanized, however, bartering gives

way to cash as payment.• In the Middle East, traditional economies

can still be found in rural areas of many countries in this region

• NO country NO country today has a totally traditional economy

A command economy is one in which government planning groups make most of the economic decisions for the workers

This group decides which goods and services should be produces, as well as prices for the goods and wages paid to the workers

No individual could decided to start a new business The government decides what and where to produce the

goods as well as how much. The government decides what jobs the workers do and

where the goods produced will be sold

The third basic type of economic system is a market economy. In a market economy, economic decisions are made by individuals

who decide what to produce and what to buy Other names for a market economy are capitalism, free enterprise,

or laissez-faire (French phrase that means to allow them to do as they please)

Individuals who want to begin their own business may do so - they take economic risk as they invest in their new business

If new businesses are successful, the people who organized and funded it will be successful and make a profit

If the business fail, the investors will lose money

Today, no countries in the world have economic systems that are purely traditional, purely command, or purely market systems

India is a good example of a mixed economy in Asia The government makes some decisions about agriculture

and industry, but free enterprise and entrepreneurship are very common.

Nearly all countries today have mixed economies – they have characteristics of a free market and free enterprise as well as some government planning and control

Not every country can produce all of the goods and services it needsBecause of this, countries specialize in producing those goods and services they can provide best and most efficientlyThey look for others who may need these goods and services so they can sell their productsThe money earned by such sales then allows the purchase of goods and services the first county is unable to produceIn international trade, no country can be completely self-sufficient (produce all the goods and services it needs)Specialization creates a way to build a profitable economy and to earn money to buy items that cannot be made locally

•Some countries in Southwest Asia are very rich in oil and natural gas, but they lack farmland and the ability to produce enough food•Saudi Arabia is able to specialize in the production of oil and natural gas and sell these products at great profit on the world market•The money earned in this trade can then be used to purchase food and the technology needed to make their agriculture system more efficient

•Israel has little in the way of oil wealth, but they have become leaders in agricultural technology even though they have a limited supply of land suitable for farming•They can sell this technology to earn the money to supplement their limited production of food

Israeli Desert cabbage

$Most of the countries in Asia have their own type of currency (money).$In order for them to pay for goods as they trade with each other, they have to establish a system of changing from one type of currency to another$This system is know as an exchange rate$They have to be able to exchange their currencies with those used by other countries around the world

Human capital means the knowledge and skills that make it possible for workers to earn a living producing goods or servicesThe more skills and education workers have, the better they are able to work without mistakes and to

learn new jobs as technology changesCompanies that invest in better training and education for their workers generally earn more profitsGood companies also try to make sure working conditions are safe and efficient, so their workers can do their jobs without riskCompanies that have invested in human capital through training and education are most likely to have profitable businesses and more satisfied workers than companies that do not make these investmentsCountries where training and education are easily available often have higher production levels of goods and services, therefore higher gross domestic product, than countries that do not offer these opportunities

Capital goods (the factories, machines, and technology that people use to make products to sell) are important to economic growth.Advanced technology and the organization of this technology into factories where many workers can work together increases production and makes the production more efficientProducing more goods for sale in a quicker and more efficient way leads to economic growth and greater profitThis greater profit leads to a higher GDPMiddle Eastern countries have invested heavily in Capital Goods in such areas as oil production,

communications, and the defense industry.

Literacy, or the ability to read and write, has a big effect on the standard of living of a countryThose who cannot read or write have a very difficult time finding decent jobsLack of education also prevents many young people from becoming the engineers, doctors, scientist, or entrepreneurs that modern economies need in order to bring improvements to their countriesIn many parts of the world, education is only available to those who can afford to pay for it themselvesIn those countries, the literacy rate is often quite lowCountries that have stronger economies usually make money available so that anyone who wants an education can go to school

One way to measure the standard of living is the Gross Domestic Product, or GDPThe GDP is the value of all goods and services produced within a country in a given year and converted into US dollars for comparisonWhen divided into a value per capita (or per person), it can be used as a measure of the living conditions in a countryThe higher the GDP value, the better the living conditions in the country