Economic Understandings

SS7E8 – a. Compare how traditional, command, and market economies answer the questions of (1) what to produce, (2) how to produce, and (3) for whom to produce.
• Traditional Economy
– Decisions based on custom and past decisions
– Tradition means things that have been passed down from one generation to the next
– Typical in farming, herding, simple crafts and trades
– Very little money ever exchanges hands
– Examples: only find in rural India and rural China

SS7E8 – a. Compare how traditional, command, and market economies answer the questions of (1) what to produce, (2) how to produce, and (3) for whom to produce.

SS7E8 – a. Compare how traditional, command, and market economies answer the questions of (1) what to produce, (2) how to produce, and (3) for whom to produce.
• Command Economy
– Centralized economy where government makes most decisions
– Government decides for the what, how, who
– Example: North Korea, China is still command but has begun to move from total government control

SS7E8 – a. Compare how traditional, command, and market economies answer the questions of (1) what to produce, (2) how to produce, and (3) for whom to produce.
• Market Economy
– Society’s economic decisions are made by individuals
– A.K.A.: capitalism, free enterprise, or laissez-faire
– Laissez-faire: to allow them to do as they please
– Examples: Japan and South Korea

SS7E8 – b. Explain how most countries have a mixed economy located on a continuum between pure market and pure command.
• Mixed Economy
– Today, no countries in the world have economic systems that are purely traditional, purely command, or purely market systems.
– At least some free market and free enterprise as well as some government planning and control
– Examples: India

SS7E8 – b. Explain how most countries have a mixed economy located on a continuum between pure market and pure command.

SS7E8 – c. Compare and contrast the economic systems in China, India,
Japan, and North Korea.
• China
– Originally designed as command system
– 1970’s farmers and factories were able to make more decisions
– Chinese government still has final authority in most matters

SS7E8 – b. Compare and contrast the economic systems in China, India,
Japan, and North Korea.
• India
– ½ of population works in agriculture
– Green Revolution of 1960’s led to modernized farming, but also led to pollution of water due to fertilizer and pesticides
– Huge technology and service industry helping develop middle class.

SS7E8 – b. Compare and contrast the economic systems in China, India,
Japan, and North Korea.
• Japan
– One of the most technologically advanced economies in the world
– Very little farmland and few natural resources
– Fishing is large industry
– One of most highly educated populations in the world

SS7E8 – b. Compare and contrast the economic systems in China, India,
Japan, and North Korea.
• North Korea
– Least open and most government-directed economies in the world today
– Government owns all land, factories, and jobs
– Rich mineral resources have allowed for industry to grow, but is strictly controlled by government

SS7E9 – a. Explain how specialization encourages trade between countries.
• Not every country can produce all they need
• Specialization creates goods most efficiently
– Trade for goods not made locally

SS7E9 – b. Compare and contrast different types of trade barriers such as tariffs, quotas, and embargos.
• Trade Barriers
– Anything that slows down or prevents one country from exchanging goods with another
– Made to protect local industries
– Also created due to political problems between countries

SS7E9 – b. Compare and contrast different types of trade barriers such as tariffs, quotas, and embargos.
• Tariff
– Tax placed on goods when they are brought
(imported) into one country from another country
– Purpose is to make imported good more expensive to protect local industry

SS7E9 – b. Compare and contrast different types of trade barriers such as tariffs, quotas, and embargos.

SS7E9 – b. Compare and contrast different types of trade barriers such as tariffs, quotas, and embargos.
• Quota
– Sets a specific amount or number of a particular product that can be imported or acquired in a given period
• Example: only 1500 cars can come from Japan in a given year
– Again, to protect local industry

SS7E9 – b. Compare and contrast different types of trade barriers such as tariffs, quotas, and embargos.

SS7E9 – b. Compare and contrast different types of trade barriers such as tariffs, quotas, and embargos.
• Embargo
– One country announces that it will no longer trade with another country in order to isolate the country and cause problems with that country’s economy
– Usually when 2 countries are having political disputes

SS7E9 – b. Compare and contrast different types of trade barriers such as tariffs, quotas, and embargos.

SS7E9 – c. Explain why international trade requires a system of exchanging currencies between nations.
• Currency: type of money used in a country
• Exchange rate: system of changing from one type of currency to another in order for countries with different currency to trade
• In order for them to trade with each other, they have to be able to figure out what goods cost in each currency

SS7E9 – c. Explain why international trade requires a system of exchanging currencies between nations.

SS7E10 – a. Explain the relationship between investment in human capital
(education and training) and gross domestic product (GDP).
• Human capital: knowledge and skills that make it possible for workers to earn a living producing goods or services
• GDP: total value of all goods and services produced by a country in a single year
• Companies and countries that invest in human capital are most likely to have profitable businesses and satisfied workers.

SS7E10 – a. Explain the relationship between investment in human capital
(education and training) and gross domestic product (GDP).
• India
– Rural India uses traditional economy to farm
• 25% of GDP
– One of the worlds top ten industrial nations
– Stressed education during past decades
– Leading software producer in the world

SS7E10 – a. Explain the relationship between investment in human capital
(education and training) and gross domestic product (GDP).
• China
– Heavy investment in human capital
– Four Modernizations program (1970’s)
1. Farming
2. Military
3. Industry
4. Scientific and technical research
– Economy continues to grow as a result

SS7E10 – a. Explain the relationship between investment in human capital
(education and training) and gross domestic product (GDP).
• Japan
– One of the most powerful industrial nations in the world
– Among most highly educated in the world
– Solid work ethic
– Ministry of International Trade and Industry
(MITI): brings government leaders and business leaders together to keep track of how Japanese economy is responding to changes in world market

SS7E10 – b. Explain the relationship between the investment in capital
(factories, machinery, and technology) and gross domestic product (GDP).
• Capital goods: factories, machines, and technology that people use to make products
• Very important to economic growth
• More efficiency leads to higher GDP
VS

SS7E10 – c. Describe the role of natural resources in a country’s economy.
• Natural resource: something that is found in the environment that people need (water, trees, rich soil, minerals)
• India and China
– Good supplies of coal
• Japan
– Very few natural resources

SS7E10 – d. Describe the role of entrepreneurship.
• Entrepreneurs: creative, original thinkers who are willing to take risks to create new businesses and products.

SS7E10 – d. Describe the role of entrepreneurship.
• India
– Some of world’s largest companies started by
Indian entrepreneurs
• China
– Relatively new
– Government decided to let entrepreneurs lead the way
• Japan
– Land of entrepreneurs