Introduction to Economic Systems Political Science I

Introduction to Economic SystemsPolitical Science I

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What are the characteristics of various economic systems?


Free-Market Economy (Free-Enterprise system)

• Is theoretically a free, unregulated market that serves the public good (Harrison & Harris, 2011)• The public good is based on the demand of citizens• The freedom of an unregulated market leads to

competition within the economy

• Has a “laissez-faire” economic approach• Is usually present in countries that have a

democratic system of government


Free-Market Economy (Free-Enterprise system) (continued)

• Is also referred to as a “capitalist” economy• Is the system used in the US• There is competition among goods and services,

but there are also Anti-Trust laws that attempt to prevent monopolies

• Citizens have• Product choices• Occupational options• No income limit


Command Economy

• Gives the government or other central authority the power to make all economic decisions• All consumer goods and services are manufactured

and provided by the central government• Individuals have very little influence over economic

functions• All resources are owned by the government• Typically exist in countries with a communist

government (e.g. North Korea)


Command Economy (continued)

• Has no competition within the economic market• The purpose of a business is to provide goods and

services, not to make a profit• Consumers have limited product choice

• Foreign goods are not imported or exported• Outside corporations are not permitted to sell goods

• The government sets• Specific quotas for manufacturing factories• Exact prices for all goods and services in the country

• There is little to no influence from outside economies


Traditional Economy

• Is governed by tradition and custom• Economic activities• Are usually centered on the family unit, tribe, or ethnic

group• Might include farming, textiles, and hunting

• Goods are produced on a very small scale, not manufactured

• Usually do not have currency, instead most items are obtained by bartering or trading among families


Traditional Economy (continued)

• Depends on the family unit• Resources are allocated based on family

inheritance• Family trades are typically continued for

generations• People rely on the resources that they produce• If resources are not produced the people may relocate or

starve• The government provides little to no resources for

citizens


Traditional Economy (continued)

• Relies heavily upon the environment (e.g. the effects of drought on crops)

• Uses technology minimally, because most people do not have access to or cannot afford technology

• Is often found in countries with no stable form of government


How does international trade affect the US economy?


World Trade Organization (WTO)

• Is an organization that promotes free trade and punishes protectionist restrictions• Protectionist economies shield their countries from

imports

• Attempts to regulate international trade• Jobs are often outsourced to countries that have

inexpensive labor• Theoretically, the increase of foreign jobs also

increases the desire for and the purchase of US exports


Economic Interdependency

• Countries are now reliant upon one another due to globalization• The health of the US economy depends increasingly on the

prosperity of its trading partners• US exports and imports have increased twenty times since 1970

(Edwards, Wattenberg & Lineberry, 2011)

• America’s largest exports include:• Grain• Computer hardware/software• Aircraft manufacturers• Moviemakers• Accounting and consulting services


Economic Interdependency (continued)

• It is much easier for countries to move capital from one country to another• However, some countries impose a tariff (special

tax) on imported goods and services in order to• Raise the price of imported goods and services• Protect businesses and workers from foreign competition

• High tariffs often play a role in a country’s economic decline

• In recent decades, the US has lowered tariffs and established free trade agreements (e.g. NAFTA)


Resources

• Edwards, George, Martin Wattenberg, and Robert Lineberry. Government in America: People, Politics and Policy. 15. New York City: Longman, 2011. Chapter 17 & 21. Print.

• Harrison, Brigid, and Jean Harris. American Democracy Now. 2. New York City: McGrawHill Comapny, 2011. Chapter 15 & 18. Print.

• O'Conner, Karen, Larry Sabato, and Alixandra Yanus. American Government: Roots and Reform. 2011. New York City: Longman, 2011. Chapter 4 & 18. Print.

• Patterson, Thomas. The American Democracy. 9th. New York City: McGraw Hill Higher Education, 2009. Ch. 15 & 18. Print.

• Schmidt, Steffan, Mack Shelley, Barbara Bardes, and Lynne Ford. American Government and Politics Today. 2011-2012. Boston: Wadsworth Cenage Learning, 2012. Chapter 17 &19. Print.

• Conduct an Internet search of the following key words: hungry planet what the world eats

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Introduction to Economic Systems Political Science I