Economic Systems

1. Economic Systems

2. Economic Systems • Economic Systems must make three basic decisions: • 1) What and how many goods and services should be produced? • 2) How should they be produced? • 3) Who gets the goods and services that are produced?

3. Market Economy In a market economy individuals and private groups make decisions about what to produce Based on free enterprise – private individuals or groups have the right to own property or businesses and make a profit with little to no government interference People are free to buy what they want, work where they want, and make what they want A.K.A. capitalism

4. Mixed Economy No country in the world has a pure market economy A mixed economy occurs when government supports and regulates free enterprise. The government works to keep competition free and fair by supporting the public interests.

5. Command Economy In a command economy government owns or directs land, labor, capital (supplies) and controls the management of business Countries with command economies believe that these rules will benefit all individuals, not just the wealthy. Public taxes are used to provide housing and health care for all citizens, but citizens have no say in how the tax money is spent.

6. Economic Resources • Natural resources – occur in nature and are used in a variety of ways • Renewable resources – sources that cannot be used up, such as sunlight, wind, forests, animals, etc. • Nonrenewable resources – cannot be replaced such as minerals and fossil fuels • It is important to conserve nonrenewable resources and find more ways to use renewable resources

7. Economic Development There are four types of economic activities 1) Taking or using natural resources (coal mining, farming, fishing, etc.) 2) Use raw materials to create something new (assembling computers, making pottery, etc.) 3) Provide services (teachers, lawyers, truckers, fast food workers) 4) Process, manage, and distribute information (accountants, government workers, researchers)

8. Economic Development The type of economic activities a country completes impacts its overall status in the world. The U.S. and other developed nations focus more on technology and manufacturing. Developing nations typically focus on using natural resources and on light manufacturing. Industrialization has taken some countries, like China, from developing to developed.

9. World Trade • Countries trade with each other all the time. • Example: Apple buys products from Chinese companies, then uses Chinese workers to assemble their products • Some nations try to protect their own goods by placing a tariff on foreign goods. • In recent years many nations have pushed for free trade between nations so that goods can flow freely among countries. • NAFTA – North American Free Trade Agreement allows for free trade between the U.S., Canada, and Mexico • The EU (European Union) is a partnership between several European nations that has free trade and a common currency.