Economic Systems and Development

Page 618-625Essential Skill:Demonstrate understanding of Different Economic systems by giving examples

Quiz coming up…

Economics Factors of

Production

Goods & Services

ScarcityThree Basic Questions:

What?/How? /Who?

Creates a need for an economic

system

And FINALLY… Define 4 types of economic systems, and give an example of each kind.

How does every country in the world deal with SCARCITY?

They create an economic system that answers these questions:

• What goods and services to produce

• How will these goods and services be produced

• Who will consume these goods and services?

Traditional Economy:Economy based on tradition and custom

Characteristics• Follow family’s path

(less mobility)• Little change over

time

Disadvantages• Not very productive• Does not adapt well

to new methods and technologies

Example: Chad

Market Economy:individuals and businesses own

resources & make decisions

Characteristics• Freedom – to own

property and control one’s own labor

• Competition – among sellers; buyers look for best quality & prices

• High GDP (Gross Domestic Product); very productive

Disadvantages• Unsteady Growth – job

loss during recessions

• Profit-Driven – – Focus on profit– Poor working conditions?

Products made with child labor?

– Negative externalities:• Pollution• Faulty/dangerous

products• Example: CA drought &

water-guzzling

Command:government owns resources andmakes economic decisions

Characteristics• Resources used for

“greater good”• Inefficient• Low GDP per capita

Disadvantages• Shortages• Poor quality G&S• Slow growth rate

China transitioning toward

Capitalism since 1970s…

Mixed-Market:has elements of both

market and command economiesCharacteristics

• Individuals, markets and government all influence the economy

• (U.S. a market-oriented economy)

• Private ownership of business + government regulation and public services

Disadvantages

• Depends on the “mix”

• Too much govt. regulation stifles businesses & innovation

• Too little govt. regulation leads to income disparity, fraud, pollution, poor working conditions

Developed Countries

• Type: wealthy; high standard of living

• Characteristics: mixed market economies; high per capita income & GDP; modernized (strong industry & technology)

• Examples (35ish countries): U.S., Canada, Japan, Germany, U.K. (roughly 35 in world)

Newly Industrialized Countries

• Type: growing economic powers; industrialized

• Characteristics: good rate of economic growth; growing export industries

• Country Examples: China, India, Mexico

Developing Countries

• Type: minimal economic growth; high number of people living in poverty

• Characteristics: low income & GDP per capita; low productivity; weak industry; many obstacles

• Country Examples: most countries in the world; (Examples: Afghanistan, Cuba, Nicaragua, Guatemala, most African nations)

• Question: Based on the ratio of developing to developed countries, what can be inferred about the standard of living of most people in the world?

• Most people live at or below the poverty level

Obstacles to DevelopmentBe able to explain HOW each problem can hurt an economy.

High Population Growth If # ppl increase faster than GDP fewer jobs available & more poverty

Single-Resource Economy Slow econ. growth; Country vulnerable; any problem with the resource can destabilize economy

Severe DebtOwe much $ to other nations & can’t keep up; Spending on debt repayment rather than investing in economy

Trade BarriersMeant to protect local industries, but often protect inefficient businesses, hurting growth

War (What is it good for?)Hurts growth by damaging land, labor AND capital; shortages occur; refugees = loss of labor (“brain drain”)

CorruptionLeaders steal $ for selves, so less $ to invest in economic growth