ECONOMICS SYSTEMS

Terms to Know

Free Market Command Traditional Mixed Capital Land Labor

Natural Resources Entrepreneur Trade Barriers Tariffs Quotas Embargo Currency Exchange Specialization

While there are many terms that are used to describe the types of economies that exist in the world, most economists agree that there are four major types of economic systems.

Market economy

An economic system in which individuals own and operate the factors of production.

AKA: Free enterprise, Capitalism United States, Great Britain, Japan

Command economy An economic system in which the

government owns and operates the factors of production.

AKA: Socialism, Communism Cuba, China

LFS QuestionWhat is the difference between a Market Economy and a Command Economy?

Traditional economy An economic system based upon customs

and traditions. Economy is based upon agriculture and hunting.

AKA: Non-Industrialized, Agrarian societies Chad, Haiti, Rwanda

Mixed economy An economic system that

has features of both market and command economies.

In reality there are no pure market economies, nor are there any pure command economies. For example, even in the United States, where free enterprise reigns, the government plays a major role in the economy. Minimum wages, social security, and regulatory policies are examples of government involvement.

In China, for example, some private ownership of businesses is allowed, however the government still maintains tight control over the factors of production and prices.

While we could say that both the United States and China are mixed economies because they contain both market and command economic features, to do so would be misleading because the role that the respective governments play in the economy are quite different.

LFS Question

What type of Economy is in Japan?

Gross domestic product (GDP) is one of the measures of national income and output

for a given country's economy. GDP is defined as the total market value of all final

goods and services produced within the country in a given period of time (usually a calendar year).

Map of countries by 2007 GDP (nominal) per capita (IMF, April 2008).

Factors of Production

Land Labor Capital Resources Entrepreneur

Land

Land in economics comprises all naturally occurring resources whose supply is inherently fixed. Such as mineral deposits.

Labor (aka: Human Capital) In economics, labor is a measure of the work done

by human beings. Human capital can also refer to the skills that workers possess (the education and training the workers have had).

Capital Capital (or capital goods) refers to items of value, it can

also mean the amount of wealth a person controls. They must have the following features to be considered

capital: They can be used to produce other goods. They were produced (this is different from "land,"

which occurs naturally ex: minerals).

Natural resources There are 2 types of natural resources:

Renewable and Non-renewable. Natural resources include soil, timber, oil,

minerals, and other goods taken more or less from the Earth.

A nation's natural resources are very important to the world’s economy.

The reduction of natural resources has become a political and economic issue. Example: rainforest regions, which hold most of the Earth's natural biodiversity. Saving natural resources is the major focus of natural capitalism, environmentalism, the ecology movement, and Green Parties.

Scarcity Scarcity- the problem of unlimited

human needs and wants, in a world of limited resources.

In other words, society does not have enough productive resources to fulfill people’s wants and needs.

Entrepreneur A person who has possession over a company or

enterprise and assumes the risks and the outcome.

Trade Barriers

A trade barrier is a general term that describes any government policy that restricts world wide trade. The barriers can take many forms, including:

Quotas Tariffs Embargo

Tariffs

A tariff is a tax on goods when they cross a national border.

Quotas

An import quota is a type of trade restriction that sets a physical limit (#) on the quantity of a good that can be imported into a country in a given period of time.

For example, a country might limit foreign fruit imports to 50 tons per year.

Embargo

An embargo is the prohibition of trade (NO TRADE) with a certain country.

The goal is to isolate it and to put its government into a difficult situation, usually the effects of the embargo are able to make its economy suffer.

The embargo is sometimes used as a political punishment for some previous disagreed policies or acts.

Currency Exchange Every country has a different kind of currency, or

monetary ($) system. Some examples of African money are the Egyptian

pound, the South African rand, and Chad’s franc. An exchange rate is the price that one country’s

currency has compared to another country’s currency. For example, one U.S. dollar is worth over one hundred

Nigerian naira. Without an exchange rate, global trade would be impossible to conduct. Exchange rates change daily. The changes are based on factors like government stability and the strength of a country’s market.

Specialization

Specialization is the development and production of one product or service.

Specialization encourages trade and can be a positive factor in a country’s economy.

Bibliography Everything You Need to Teach, The Middle East. InspirEd. 2000. Georgia Department of Education. Types of government Worksheets for

Unit 2. 06/30/2007. Grade Seven GPS. Georgia Department of Education. September 2, 2008.