Presentation on theme: "Chapter 24, Lesson 2. In a market economy, individuals make the economic decisions. Private individuals, not the government, own the factors of production."— Presentation transcript:
In a market economy, individuals make the economic decisions. Private individuals, not the government, own the factors of production including natural resources, capital, labor, and entrepreneurship. In a way, a market economy runs itself. Supply and demand combine to set the prices of goods and services.
Market economies give people a lot of freedom. People are free to own property, control their own labor, and make their own decisions. Sellers compete with each other to attract the most buyers, and buyers compete with each other to find the best prices. Most countries with high GDPs per capita have a market economy, so individuals tend to make more money.
Although market economies enjoy a high degree of success, they do not grow at a steady rate. While periods of growth are much longer than the periods of decline, people can hurt in the down times. Some even lose their jobs. Another problem is that businesses, driven by profit, might not give workers good working conditions or high wages. The profit motive can also result in neglect in other areas, like being environmentally conscious.
The opposite of a market economy is a command economy. In a command economy, the government owns the factors of production. It has powerful planning agencies that make the major economic decisions like what goods will be produced, how they will be produced, and to whom they will go. Most command economies have their roots in a system known as socialism, the belief that the means of production should be owned and controlled by society. They feel that this system distributes wealth more equally among all citizens.
Command economies are not very efficient. For instance, Cuba and North Korea, both of which have command economies, have low GDPs per capita. People face shortages of goods and services as well as poor quality products. In recent years, several former command economy in Eastern Europe and Russia have decided to make the switch to market economies. Privatization is the process of changing state-owned businesses, factories, and farms into ones owned by private citizens. Although many of these countries struggled with the change, China’s gradual approach has brought them much economic success.
The U.S. economic system today is not a pure market economy. Although it is more oriented toward a market economy, it combines elements of both. For instance, the government does provide some goods and services such as roads, bridges, and schools. The government also regulates some businesses to ensure competition and to make sure workers and consumers are protected.
Standard of living is measured by such things as having plentiful goods and good health care. Countries with high standards of living are called developed countries, and only about 35 of them exist in the world today. Some countries have taken steps to join this group such as building export industries, but they have not yet reached the level of output of developed countries. They are called newly industrialized countries, and examples include China, India, and Mexico. A large number of countries, however, do not have advanced economies and therefore have low GDPs per capita. They’re called developing countries
One major obstacle is population. When the population grows faster than the GDP, GDP per capita goes down. Countries with the fastest population growth tend to have the lowest GDP. Another challenge, more people means more jobs need to be created. This leads to a rise in trade barriers in order to protect domestic jobs. Developing countries often lack the ability to extract, use and sell their resources. Lack of access to the sea also hinders the ability to export goods. In a single resource economy, a nation depends on a single export for economic growth. War is another challenge faced by developing countries. Fighting damages resources, kills and scares away the populace, causing productivity to stop. As a result more countries have difficulty investing in their economies.
Many developing countries face debt. Many borrowed large sums of money to encourage economic growth. They have to use their income to pay back the debt. Corruption is also a big challenge. Leaders stole money that was meant to pay for the economic development projects or other projects to help their people. Corrupt leaders make decisions for themselves not the country. Many developing countries have to deal with two or three serious problems at the same time. As a result, economic progress has been difficult for them to achieve.