2 Review . . . Types of Economies TYPES OF ECONOMIC SYSTEMSDefinitionKey TermsCountries1) Market economyAn economic system in which individuals own and operate the factors of production.Free enterprise Capitalism2) Command economyAn economic system in which the government owns and operates the factors of production.Socialism CommunismCuba China3) Mixed economyAn economic system that has features of both market and command economies.United States Great Britain Japan4) Traditional economyAn economic system based upon customs and traditions. Economy is based upon agriculture and hunting.Non-Industrialized Agrarian societiesAborigines(Australia)
3 Economic Continuum No system has a pure command or market economy. All economies combine aspects of both of the command and market economic systems – to different degrees.USA has some government owned businesses – schools, public colleges, postal services – in addition to the privately owned businesses.
4 What’s Your Economy? Cuba – command economy Government owns all resourcesGovernment decides what and how much is to be producedStruggled since the breakup of the USSRBrazil – mixed economyStrong agricultural, mining, manufacturing & service industriesStrongest economy in South AmericaGovernment controls health care and postal services
5 Specialization & Opportunity Cost Focus on producing one or two goods really wellAdvantagesProduce goods in less timeProduce goods for less moneyOpportunity CostValue of what is given up when a choice is madeExampleCountry X makes chocolateCountry Y makes carsCountry Y needs to import chocolateOpportunity cost is the money Country Y could have made if they made their own chocolate
6 Trade Barriers Tariff – tax Embargo Quota A trade barrier that is used to discourage trade with foreign companiesThis type of barrier would restrict tradeCreated to increase the prices of imported goods and protect a country’s own industries from foreign competitionEmbargoForbidden trade with another countryThis type of barrier would STOP the importing of an itemCan be put in place for safety reasons Unsanitary conditions – lead paintAlso used for political reasons Countries that violate human rightsQuotaRestrictions on the amount of a good that can be imported into a countryThis type of barrier can create shortages and an increase in price.EU placed a quota on Chinese imports of clothing when France and Italy, with strong textile industries, complained about cheap import prices.
7 NAFTA (North American Free Trade Agreement) 3 countries involvedUSA, Mexico, CanadaPurposeIncrease trade between member nations by creating a large free-trade zone (remove trade barriers)Key Functions – between member nationsEliminate tariffs on goods shippedRemove restrictions on investmentRemove custom barriers at border crossings(make it easier for trucks to pass into Mexico)Establish tough standards for environmental, health and safety regulations in industriesImprove working conditions
8 Economic Growth 4 factors for economic growth EntrepreneurshipIdeas, innovation and risk involved in starting a businessLandCapital - Factories, machines, etc.Labor - Human capitalHow is economic growth measured?Gross Domestic Product (GDP)Total market value of the goods and services produced by a country’s economy in a specific year.Used to determine the health of a country’s economy and compare it to other countries.Strongest in Latin America – Brazil and MexicoWeakest in Latin America – Haiti and Bolivia
9 How does a country raise its GDP? Invest in human capitalEducation and skills trainingSmarter people leads to a more productive workforceIncrease economic growth.Literacy rate is used to determine the educational level of people . . .Higher the literacy rate. . . Higher the GDPWidespread poverty and lack of education in Latin AmericaMany students have to work instead of go to school.Invest in capital resourcesProvides workers with the most current and updated tools.New factories, computers, roadsIncreases productivity and economic growth
10 What role does natural resource play in the success of a country’s economy? Fuel for a country’s industries.Source of income when exported.BrazilRich mineral resources like iron ore (makes steel)Fertile soil, plentiful forests, riversMexico and VenezuelaOil depositsHave more than they need – sell to other countries
11 What role do entrepreneurs play in the success of a country’s economy? Generate new ideasInvest in human, capital and natural resourcesWilling to take risksHelp countries adapt to changing trendsIn Latin America . . .Unemployment is high among young adultsDeveloping classes to develop entrepreneurshipA lot of “red-tape” months to start a business in VenezuelaStarting a business is viewed as a way to get out of poverty!