Presentation on theme: "There are 4 different types of economic systems: 1. Market economic system (pg R32) - this is an economic system based on individual choices and voluntary."— Presentation transcript:
There are 4 different types of economic systems: 1. Market economic system (pg R32) - this is an economic system based on individual choices and voluntary trade. This system is also called the free enterprise system (R29) or capitalism (R 24). The role of the government is limited, but it is important. Consumers are free to spend their money any way they want. Producers of goods and services want to make profits, so they must produce goods that people want, and they must sell them at prices people are willing to pay.
2. Command economic system (R 25)- this is an economic system in which the government decides what goods will be produced, how they will be produced and how they will be distributed. This system is also called communism (R25). The government plays such a major role in the economy that the wants of the individual consumers are overridden by the government’s desire to be equal. In this type of system, workers do not have any incentives to do their best or try their hardest. Everyone gets almost equal pay. This causes the production levels to be low and the quality of the products to be poor.
3. Traditional economic system (R 35)- this is an economic system in which social roles and culture determine how goods are made, sold, and bought. These systems are based on customs that have been handed down for generations. In this type of system you often see children doing the same jobs as their parents. There are very few societies that still have traditional economic systems today. One can see pieces of this system in all of the different economies.
4. Mixed economic system (pg R32)- this is an economic system that has features of traditional, command and market systems. Countries with mixed systems try to use the best part of every system. The government’s role is bigger than the market system, but it is less than the command system. This economic system is sometimes compared to socialism (R33). In a socialist economy the government owns the major industries.
There are 3 questions that every economic system has to answer: (R27) 1. What will be produced? 2. How will it be produced? 3. For whom will it be produced? Depending on how countries answer these questions, will decide the type of economy a country will have.
Once a country answers these questions at a national level, they must start looking outside their borders. Many countries (and companies) rely on international business to help increase their profits. Countries must ensure that there is a balance of trade (R24) between the imports and exports that are coming in and going out of their country. A balance of trade that is unequal can hurt a countries economy. Exports (R29) - goods and services traded with or sold to another country. (abundance or surplus) Imports- (R30) - goods brought into one country from another through trade or sale.
Some countries limit the amount of imports into a country by using trade barriers (R 34) - any law or practice that a government uses to limit free trade between countries. Examples: tariffs (R 34) - a fee or a tax charged for goods brought into a country (or state) from another country (or state). These tariffs are used as a way to protect products that are made within a country. (NAFTA and less competition) embargo (R 27) - when a government places restrictions on the import and export of certain goods. Often a political action backed by military force. (Cuba and USA)
Currency (R 26) - money in any form that is accepted as a medium of exchange, but especially paper money. There are many different types of currencies in the world. Some countries have moved to having a common currency. Switching to a common currency can increase trade and help countries with financial problems. Exchange rate (R28) - the amount of one currency that can be purchased for a given unit of another. Can cause problems with international trade. Sometimes considered a trade barrier.
Common economic terms Producer- a person who supplies a good or service to a consumer Consumer- a person who uses goods and services Supply and demand- an economic concept that states that the price of a good rises or falls depending on how many people want it (demand) and depending on how much of the good is available.
Savings- money that has been set aside either in a savings account, checking account or even a piggy bank that can be used for future needs. Budgets- financial plans that allow a person to manage the money coming into a household. Allows people the ability to spend their paychecks (income) on bills and other necessities while at the same time helps prevent them from going into debt (no money). Loan/credit- a way of borrowing money to buy something now and pay for it at a later date. This can cause financial problems.
Interest- is a fee that is added to the amount of money that is borrowed