Economic Systems

Vocabulary Economy – a system in which people make, exchange, and use things of value Producer – owners and workers Consumer – the people who buy and use products

Capitalism An economic system in which private individuals own most businesses It is called a free market economy because companies are free to compete for consumer business People save money in banks and banks lend money to people to start businesses People may invest in, or commit money to, businesses

Communism An economic system in which the central government owns most businesses The central government sets the prices of goods and determines who may buy goods and how much they may buy The central government determines how much workers will be paid The central government will decide where to invest its resources

Mixed Ownership Hardly any nation has a pure economic system. In capitalist nations, the government owns some businesses and in communist nations, some individuals are allowed to own small businesses In the USA, schools and the post office are run by the government In Cuba, a communist nation, a few people are allowed to operate small neighborhood shops

Vocabulary Developed nation – Nations with more industry and more advanced technology Developing nation – Nations with fewer industry and less advanced technology

Developed Nations Most people live in cities and towns People usually work in offices and factories. Food is usually grown by commercial farmers. They grow crops for sale rather than for their own needs.

Developing Nations Developed nations do not have great wealth. They have little wealth and less advanced technology. Most people grow their own food which is called subsistence farming. Most of the work is done by people or animals rather than machines

Developing nations What are some challenges in developing nations? Diseases, food shortages, unsafe water, poor education, poor healthcare, and political unrest

World Trade Patterns Countries need to trade with each other because they each have a different set of economic specialties. Developed countries usually sell products made using advanced technology. Developing nations usually sell foods, natural resources, and simple industrial products.

Trade Agreements Countries have formed trade alliances with each other to reduce trade costs. Two examples of trade alliances are the North American Free Trade Area (NAFTA) and the European Union (EU).