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How do economies differ? What you have learned so far is based on the type of economic system found in Canada. However, there are other ways to answer the five economic questions. This diagram explains the story of a person with a cow in different economic systems found around the world. Traditional Economy You use the cow for milk, or share the meat with the community. It’s still your herd, but you feel wraped up in government regulations. Mixed Economy The government takes your herd and puts you to work looking after them. You buy a bull to build up a herd of dairy and beef cattle to sell. Market Economy Command Economy
A Market Economy • In a market economy, answers to the economic questions will be influenced by profit. • People make and distribute products or services that can be sold at a price greater than the production costs. • Prices are decided by the supply brought to market by sellers, and the demand of customers to have these products.
Considering the concept of supply and demand, suggest why front row seats at a leafs game cost so much. Would you pay extra to see a game up close? Why or why not?
In 1776, Scottish professor Adam Smith described a market economy in this book. Smith wrote that all people should be free to try to get the best price for goods and services, as long as their actions did not harm others. Smith also thought that a country would be more successful if government did not interfere with business. He believed that decisions made about goods and services in a market economy should only be made by those involved in business.
Market Economy Problems • During the Industrial Revolution of the 19th century, some aggressive entrepreneurs who controlled railway lines, factories and power plants were known as “robber barons.” • They lived in luxury while most working people labored long hours for very little pay. • Since then, labour unions have sought better pay and working conditions for all workers.
Market economies also go through cycles of decline, called an economic depression. • During the Great Depression of the 1930s, factories were forced to close, workers were laid off, and ten years of widespread poverty set in. • Governments were forced to step in and help by investing in work projects. • Many governments continue to this day playing an active role in business and industry.
Profit or Environment? • Choosing between protecting the environment and the growth of business can be difficult. • Communities want jobs but damage to the environment can have long-term effects on everyone. • Responsible companies seek to limit their impact on the environment. They may replant trees or reduce waste by recycling.
However, many companies find these practices too expensive, and choose cheaper options. Excessive greed is an on-going problem in market economies. Canadian financier Sir Henry Pellat built Casa Loma, a 98 room mansion overlooking Toronto. He was a wealthy entrepreneur also known as a “robber baron”.
