Comparing Economic Systems Chapter 26.2 and 26.3

Vocabulary – Chapter 26.2 and 26.3 Market Economy Command Economy Socialism Communism Mixed Economy Developing Countries Traditional Economy

Economic Systems Three major types: Market Command Traditional The distinguishing factors are the role of government in the economy and the decision making for production.

Market Economies Economic decisions are made in free markets based on supply and demand Laissez-faire economics Private Citizens – not the gov’t – own all of the factors of production.

Command Economy Government makes most or all economic decisions. (North Korea, Cuba, former Soviet Union) Limited individual freedoms, choices or influence over the economy Gov’t owns most productive resources – land, capital – answers all 3 of the basic economic questions, is responsible for fixing wages of workers and setting prices for goods. Planning agencies to control different parts of the economy – agriculture, steel production Can be very inefficient resulting in slower growth and lower per capita GDPs

Also Referred to as Socialism & Communism Socialism – belief that the means of production should be owned & controlled by society either directly or through the gov’t – wages/products/services are more evenly distributed among all citizens Karl Marx – German philosopher and socialist – believed industrialized nations are divided into 2 types of people - the bourgeoisie (capitalists who owned the means of production) & proletariat (workers who produce the goods) Predicted revolution of the proletariat. Eventually would be no classes – socialism would evolve into communism - one class would evolve where property would be held in common and there would be no need for gov’t. Ask 1st what socialism is & communism is By society owning production through government control socialists felt wealth would be distributed equally among citizens – workers are exploited

Command Economies – North Korea

Mixed Economy A combination of Command and Market economies Private ownership, individual decision making + some gov’t regulation and intervention At certain times, govt. can take control of the means of production. Most countries in the world are a mixed economy The United States is a mixed economy because capitalism and free enterprise exist with government regulations. The U.S. govt. provides services such as highways, postal system, military.

Traditional Economy Economic decisions are made by customs handed down through generations. Hunting, farming, and gathering. Limited technology. Men and women typically have defined social roles. Found developing countries – extremely low per capital GDP, rural, non- industrialized areas. (Africa, S. America, Asia)

Transitioning Traditional Economies Developing countries face 5 problems when trying to convert from a traditional to a mixed economy High rate of population growth – can cause the per capital GDP to decline Landlocked War Debt Corruption within the government If pop grows faster than GDP = per GDP will decline Without access to ocean trade routes – lack natural resources Destroys infrastructure – roads, bridges, hospitals, factories. Only very young and very old are left. Skills are lost/not efficiently used Borrow money to stimulate economic growth. Interest alone can be too much for third world nations to pay back Delays development b/c resources and money are horded or used inefficiently

Transitioning Command Economies Former Soviet Union & the Soviet Bloc Inefficiency of command economies led to no or very small growth Transition of this type of economy led to transition from a command to mixed economy Why would a transition be hard? Transitions are hard b/c state owned factories have to be converted to private ownership, stock markets had to be created & people had to learn how to let supply & demand work Slow growth – pg 718 look at map to see command economies per capita gdp Explain China & how they are doing something before never seen in Communist countries – are they transitioning? Will come back to this when we hit internationalism & globalization

Activity On the paper provided, NEATLY create a 4 square of the types of economies we just discussed – Command, Traditional, Market, and Mixed. Be sure to include several characteristics, examples, and pictures. These will be hung up and people should be able to easily understand the differences and major characteristics of each of the economies Use complete sentences!

Warm up 1. Economic system where the government makes all of the economic decisions? 2. Economic system that is a combination of command and market economies? 3. Total dollar value of all final goods and services produced in a country during a single year? 4. Consumers are ‘king’ of the market because they decide what produces will be produced? 5. Characteristic of a market economy that describes the struggle between buyers and sellers to get the best products and the lowest prices? 6. This is based on private ownership of the means of production and can decide how to use them to use them to make a profit?