Introduction to Comparative Economic Systems

Introduction to Comparative Economic Systems

Honors Non-Western StudiesMr. Tumino

Discussion…

• How would you define economics?• What is an economic system?• How does economics impact you?

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.

Definitions• Factors of production:

– Those things necessary to produce goods and services.

» Land» Labor» Capital (money, buildings, equipment, etc.)» Management

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"

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.

Market Economy

Definitions

• Command economy:– An economic system in which decisions

regarding the factors of production are made by government leaders.

Command Economy

Command Economies• Two types of command economies:

–Communist—strict government control of the entire society

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.

Definitions

• Mixed economy:–A combination of market, command, or

traditional economy.–A system in which free enterprise is

affected by government regulations.

Mixed Economy

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

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.

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.

Economies and Trade

• Factors affecting trade:– The unequal distribution of natural

resources– Differences in labor costs– Differences in education levels

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.

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.

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

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.