Introduction to Political Science

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Introduction to Comparative Economic Systems

Honors Non-Western Studies Mr. Tumino

Discussion…

• How would you define economics?

• What is an economic system?

• How does economics impact you?

Comparative Economics Systems

The major economic systems are traditional economy, market economy, command economy and mixed economy.

There are also countries that are said to have developing economies, moving from a traditional to a market economy.

Definitions

• Factors of production: – Those things necessary to produce goods and services.

» Land » Labor » Capital (money, buildings, equipment, etc.) » Management

Definitions

• Traditional economy: – An economic system in which the factors of production are settled by rules accepted as good and correct – Normally used to describe economic systems that pertain in societies with extensive subsistence agriculture – Used by members of industrialized societies to describe societies deemed "underdeveloped"

Definitions

• Market economy: – An economy in which the prices of goods and services are determined in a free price system.

– A system in which buyers and sellers exchange on the basis of supply and demand.

– Also known as a capitalist economy.

Market Economy

Definitions

• Command economy: – An economic system in which decisions regarding the factors of production are made by government leaders.

Command Economy

Command Economies

• Two types of command economies: – Communist—strict government control of the entire society

Command Economies

– Socialist—three main goals of this type of economy: • An equitable distribution of wealth and economic opportunity • Society’s control, through its government, makes decisions about public goods.

• Public ownership of services and factories that are essential.

Definitions

• Mixed economy: – A combination of market, command, or traditional economy.

– A system in which free enterprise is affected by government regulations.

Mixed Economy

Economic Decisions

• All economic systems must make three basic economic decisions: – What and how many goods and services should be produced – How should they be produced – Who gets the goods and services that are produced

Economic Decision Making

• These decisions are made differently in the three major economic systems: – Traditional—habit and custom determine the rules.

– Market—this economy is based on free enterprise, the idea that private individuals or groups have the right to own property or businesses and make a profit with only limited government interference.

– Command—the government controls the economy is this system .

Economics and Trade

Countries with varying levels of economic development have become increasingly interdependent through world trade.

• Geographers and economists classify all of the world’s economic activities into four types: – Primary economic activities—taking or using natural resources directly from the Earth – Secondary economic activities—raw materials are used to produce something new and more valuable.

Economies and Trade

• Factors affecting trade: – The unequal distribution of natural resources – Differences in labor costs – Differences in education levels

Economics and Trade

• Barriers to trade: – Tariffs – Embargos – A quota on the quantity of a product that can be imported from a country • Many governments around the world have moved toward free trade.

Gross Domestic Product

• GDP -

Gross domestic product

refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living.

Gross National Product

• GNP - Gross National Product is the market value of all products and services produced in one year by labor and property supplied by the residents of a country

GDP vs. GNP

• Gross National Product (GNP) is often contrasted with Gross Domestic Product (GDP). While GNP measures the output generated by a country's enterprises - whether physically located domestically or abroad GDP measures the total output produced within a country's borders - whether produced by that country's own firms or not.

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