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Chapter 24, Lesson 2. Economic Systems and Development. Market Economies. In a market economy, individuals make the economic decisions. Private individuals, not the government, own the factors of production including natural resources, capital, labor, and entrepreneurship.

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market economies
Market Economies
  • In a market economy, individuals make the economic decisions.
  • Private individuals, not the government, own the factors of production including natural resources, capital, labor, and entrepreneurship.
  • In a way, a market economy runs itself.
  • Supply and demand combine to set the prices of goods and services.
characteristics of a market economy
Characteristics of a Market Economy
  • Market economies give people a lot of freedom.
  • People are free to own property, control their own labor, and make their own decisions.
  • Sellers compete with each other to attract the most buyers, and buyers compete with each other to find the best prices.
  • Most countries with high GDPs per capita have a market economy, so individuals tend to make more money.
disadvantages of market economies
Disadvantages of Market Economies
  • Although market economies enjoy a high degree of success, they do not grow at a steady rate.
  • While periods of growth are much longer than the periods of decline, people can hurt in the down times.
  • Some even lose their jobs.
  • Another problem is that businesses, driven by profit, might not give workers good working conditions or high wages.
  • The profit motive can also result in neglect in other areas, like being environmentally conscious.
command economies
Command Economies
  • The opposite of a market economy is a command economy.
  • In a command economy, the government owns the factors of production.
  • It has powerful planning agencies that make the major economic decisions like what goods will be produced, how they will be produced, and to whom they will go.
  • Most command economies have their roots in a system known as socialism, the belief that the means of production should be owned and controlled by society.
  • They feel that this system distributes wealth more equally among all citizens.
switch to a market economy
Switch to a Market Economy
  • Command economies are not very efficient.
  • For instance, Cuba and North Korea, both of which have command economies, have low GDPs per capita.
  • People face shortages of goods and services as well as poor quality products.
  • In recent years, several former command economy in Eastern Europe and Russia have decided to make the switch to market economies.
  • Privatization is the process of changing state-owned businesses, factories, and farms into ones owned by private citizens.
  • Although many of these countries struggled with the change, China’s gradual approach has brought them much economic success.
mixed economies
Mixed Economies
  • The U.S. economic system today is not a pure market economy.
  • Although it is more oriented toward a market economy, it combines elements of both.
  • For instance, the government does provide some goods and services such as roads, bridges, and schools.
  • The government also regulates some businesses to ensure competition and to make sure workers and consumers are protected.
developed and developing countries
Developed and Developing Countries
  • Standard of living is measured by such things as having plentiful goods and good health care.
  • Countries with high standards of living are called developed countries, and only about 35 of them exist in the world today.
  • Some countries have taken steps to join this group such as building export industries, but they have not yet reached the level of output of developed countries.
  • They are called newly industrialized countries, and examples include China, India, and Mexico.
  • A large number of countries, however, do not have advanced economies and therefore have low GDPs per capita.
  • They’re called developing countries
obstacles to development
Obstacles to Development
  • One major obstacle is population.
  • When the population grows faster than the GDP, GDP per capita goes down.
  • Countries with the fastest population growth tend to have the lowest GDP.
  • Another challenge, more people means more jobs need to be created.
  • This leads to a rise in trade barriers in order to protect domestic jobs.
  • Developing countries often lack the ability to extract, use and sell their resources.
  • Lack of access to the sea also hinders the ability to export goods.
  • In a single resource economy, a nation depends on a single export for economic growth.
  • War is another challenge faced by developing countries.
  • Fighting damages resources, kills and scares away the populace, causing productivity to stop.
  • As a result more countries have difficulty investing in their economies.
developing countries cont
Developing Countries Cont.
  • Many developing countries face debt.
  • Many borrowed large sums of money to encourage economic growth.
  • They have to use their income to pay back the debt.
  • Corruption is also a big challenge.
  • Leaders stole money that was meant to pay for the economic development projects or other projects to help their people.
  • Corrupt leaders make decisions for themselves not the country.
  • Many developing countries have to deal with two or three serious problems at the same time.
  • As a result, economic progress has been difficult for them to achieve.