Georgia Performance Standard and Essential Question SS7E5 The student will analyze different economic systems. a. Compare how traditional, command, and market economies answer the economic questions of (1) what to produce, (2) how to produce, and (3) for whom to produce. b. Explain how most countries have a mixed economy located on a continuum between pure market and pure command. EQ: 1. How do the traditional, command, and market economies of Southwest Asia countries answer the economic questions of (1) what to produce, (2) how to produce, and (3) for whom to produce? 2. Where are the economic systems of Southwest Asia located on a continuum between pure market and pure command?

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

What factors to you think can affect GDP? Literacy rate Ability to read and write Lack of education prevents many young people from becoming engineers, doctors, scientists or entrepreneurs that the modern economies need in order to bring improvements to their countries In many parts of the world, education is only available to those who can afford to pay for it themselves Countries that have stronger economies usually make more money available so education is available to more people

Natural Resources Distribution of natural resources throughout Asia plays a major part in determining the type of work people do and how comfortable they are able to live A natural resource is something that is found in the environment that people need Water, trees, rich soil, minerals, and oil are all examples of natural resources One of the most valuable resources in this part of the world is rich farmland

Economic Systems The way in which a nation uses its resources to satisfy people’s needs and wants. Resources include: Natural resources Work force

Economic Systems When deciding how to use it’s limited resources, every country answers 3 questions about production and distribution What will be produced? How will it be produced? For whom will it be produced? How a country answers these questions depends on the type of economic system they have.

Four types of Economic Systems Traditional Economy Command Economy Market Economy Mixed Economy

Traditional Economy Overview Based on social roles, customs, traditions and culture determine how goods are made, sold, and bought. Economy is based on farming and hunting. People will make what they always make; they will do the same work their parents did. (Customs passed rom one generation to the next.)

Traditional Economy What to produce? What people need to survive. How to produce it? Hunting, farming, gathering (social roles determine who does what) For whom to produce? Make their own products (what they have always made)

Characteristics of Traditional Found in rural, non-developed countries (some parts of Asia, South America, and Africa) Customs govern the economic decisions Technology not used

Characteristics of Traditional Farming, hunting, and gathering are done the same way as the generation before Activities are centered toward the family or ethnic unit Men and women have different economic roles and tasks

Command Economy Overview Government decides what goods will be produced, how they will be produced, and how they will be distributed. The government would decide who would be farmers, what they would grow, and how much would be turned over to the government.

Command Economic System Also called Socialism, communism Examples: North Korea, former Soviet Union, Cuba A lot of Government restrictions

Command Economy What to produce? Whatever the government decides How to produce it? However the government decides For whom to produce? Class reward system; waiting in line/rations

Characteristics of Command Government or other central authority makes decisions about and determines how natural, capital, and human resources will be used. Change can occur easily, because its government driven Little individual freedom No competition between businesses

Characteristics of Command Business are not run to create a profit Consumers have few choices in the market Factories are concerned about meeting quotas (not profit)

Characteristics of Command Shortages often occur because of poorly run factories and farms Government determines your job Government sets the price of goods and services

Market Economy Overview Based on Individual choices and voluntary trade Systems in which most of the basic economic questions are answered by producers and consumers acting freely. Production and economic decisions are based on supply and demand. There are no pure market economies in the world today!!!

Market Economy Overview Individuals own and operate the buildings, machinery, property of production. Production and distribution questions are answered by prices and profits. Businesses will make products, and provide services that will earn a profit. Standard of living is higher in this system. Prices of goods depend on how much is available and how many people want it. Examples: US, Great Britain, Japan

Market Economy What to produce? What people want to buy and sell How to produce it? Supply and demand For whom to produce? Determined by how much someone is willing to pay for it

FIVE CHARACTERISTICS OF MOST MARKET ECONOMIES TODAY 1. PRIVATE OWNERSHIP OF PROPERTY 2. INDIVIDUAL INITIATIVE OR ENTREPRENEURSHIP 3. COMPETITION 4. FREEDOM OF CHOICE 5. PROFIT MOTIVE

Market Economy Characteristics Competition determines prices which increase the quality of the product (you want to make the best and most inexpensive product, so consumers will buy your product instead of your competitor’s product) No government intervention in the economy ALSO CALLED CAPITALIST ECONOMY

Mixed Economic System Features a mixture of traditional, command, and market systems Most all economies today are mixed The government enacts some regulations, but its role in the economy is limited.

Mixed Economy Individuals own most resources and determine what and how to produce. Government regulates certain industries. Has features of both market and command economies. Example: China, most nations The US has a market economy but the government still has control over wages, social security and some policies.

Most Countries….. Most countries have a mixed economy where they sway back and forth between a pure market and pure command economy. A pure market is an economy in which pure competition prevails. – NO GOVERNMENT INTERVENTION A pure command is an economy in which the government makes all decisions. – NO FREEDOM = COMPLETE GOVERNMENT CONTROL

____________________________________________ _ ECONOMIC SYSTEMS Who Answers the Questions in the Economic Systems ____________________________________________ _ Traditional Command Market Tradition, the the Religion, government consumers Customs, and and the and the past central planners producers

ECONOMIC SYSTEMS CHART What to Produce How to Produce For Whom to Produce TRADITIONAL Determined by Custom, habit, tradition, religion, law COMMAND Government or central planners MARKET Determined by individuals

Economic System in Israel Most developed economy in Southwest Asia Has high tech industries Lacks natural resources– depends on imports of most agriculture goods agriculture, fishing, and mining (diamonds) manufacturing (metal products, electronic and biomedical equipment, processed foods, chemicals, and transport equipment) Israel has a Mixed Economy

Economic System in Saudi Arabia? Oil-based economy, also hs manufacturing and financial industries. Strong government control over major economic activities. Government encourages private buisnesses FYI: Possesses 25% of the world's petroleum reserves and ranks as the largest exporter of petroleum. The King and his advisors make most of the decisions about how and where to produce oil profits. Saudi Arabia has a Mixed Economy.

Economic System in Turkey? Great oil wealth, but many Iranians do not share in the money. Key industries: textiles, oil refineries , iron steel, food industries (relies on agriculture) Government attempts to keep tighter control. Government regulates banks, transportation and communications. Command economy not efficient. Turkey has a Mixed Economy.

Economic System in Turkey? Turkey has the least economic freedom of the three other countries. Industries (airlines, railroads, telephone, and television) are controlled by the government. Recently, the government has been allowing more private ownership and more laws have been passed to protect business owners. Turkey has a Mixed Economy.

ECONOMIC FREEDOM CONTINUUM 66.1-Israel PURE COMMAND 60.8 Turkey PURE MARKET 10 20 30 40 50 60 70 80 90 100 Repressed Free 52.8- Saudi Arabia

Economic Vocabulary

Trade Barrier Any law or practice that a government uses to limit, slow down or prevent free trade between countries Some trade barriers are political and designed to hurt another countries economy Tariff: tax placed on goods when they are brought (imported) form one country to another. Taxes Embargo: An official ban on trade with another country Quotas: a limit on the amount of a product that may be imported during a given period of time.

Capital Human Capital Capital Goods The knowledge and skills that allow workers to produce goods and services and earn an income Capital Goods Resources such as factories, machinery, and tools that people use to make other goods

Entrepreneurship The rare mixture of the qualities needed to create and run new businesses

Specialization Countries specialize in producing those goods and services they can provide best and most efficiently Specialization is a way to build a profitable economy and to earn money to buy items that cannot be made locally Not country can produce all the goods and services it needs, meaning no country is self-sufficient

Financial Info Currency: the type of money used Exchange rate: System of changing from one type of curency to another. Most countries in Asia have their own type of currency Due to international trade, countries must be able to exchange their currencies with those used by other countries around the world.

Factors of Production The resources needed to produce goods and services There are four factors of production Natural resources Labor Capitol goods entrepreneurs