Global Economics THREE ECONOMIC QUESTIONS FREE MARKET SYSTEM CENTRALLY PLANNED SYSTEM MODERN ECONOMIES

1. The ECONOMIC Questions How a nation answers these questions determines their economic system. NEXT PAGE

What should be produced?

How should goods and services be produced?

3. Who will consume the goods and services?

Five Economic Goals Efficiency Freedom Security and predictability Equity Growth and innovation

Economic Goals Economic Efficiency Making the most of resources Description Example Economic Efficiency Making the most of resources Computers; Recycling Economic Freedom Free from gov’t. intervention Purchase goods Target not Foley’s Economic Security/ Predictability Assurance of available Goods, Payments on time, And safety net for needy Highways for Delivery; Welfare Economic Equity Fair distribution of Wealth Taxes Patent Protection For Inventions Economic Growth/ Innovation Encouraging innovation Leads to eco. Growth and Better living standards

The Different Economies

Traditional Economy Relies on habit, custom or ritual to decide what to produce, how to produce it and who can buy it. No room for change. Ex: Secluded tribes/ some villages.

Produce Goods and services with Factors of Production Individuals & Businesses Competition Helps REGULATE production, buying and selling Produce Goods and services with Factors of Production In a FREE MARKET People can BUY and SELL what they want without a lot of govt. Interference! Roles in a Free Market System Self-Interest Households Buy FOP; Consume goods and services MOTIVATES consumers And producers Firms Buy and consume resources in order to produce Goods and services Chapter 2: Sec. 2

Free Market

“invisible hand” in the Free Market Self-interest is the motivating force ex. A desire for a good/service Competition is the regulating force ex. Lower price of goods to get more business Free Markets are self-regulating!

Free Market Advantages Economic Efficiency – produce and make only that which is needed Economic Growth – competition encourages innovation Economic Freedom – work, produce, and consume when you want

Free Market Disadvantages: No government intervention whatsoever… is that good?

Central Market Economy

Central Market Economy Disadvantages Poor Quality – without competition the producer does not need to care about quality Serious Shortages – Government cannot respond quickly to consumer demands Decreased Production - Without competition

Types The words most often associated with centrally planned economies are socialism and communism. Socialism: belief that democratic means should be used to distribute wealth evenly throughout a society. Communism are authoritarian gov that control everything with no rights Very stable because gov makes all the choices.

Modern Economy

Mixed Economy Governments Role Keep Order Laissez fair – limited degree of government involvement Keep Order Provide Vital Services – Eco Security Promote General Welfare – Eco Equity

All nations combine free-enterprise with centrally-planned economics. MIXED ECONOMIES All nations combine free-enterprise with centrally-planned economics. The degree to which the government is involved in the economy can make or break their economic growth.

Modern Economies * Describe, with detail, the economic practices of the countries listed below. You should include several descriptive phrases that help us to better understand their system. COUNTRY DESCRIPTION OF ECONOMY 75% ownership by gov’t; state businesses being sold to Private citizens to be more capitalist China Gov’t does not interfere w/ property rights and market; Open to foreign investors; few trade barriers Hong Kong Gov’t. owns all property; produces 95% of goods; Most imports banned; no foreign industries North Korea Discourages start-ups thru licensing and regulations; Wide spread bartering Russia Sweden Half of nation’s wealth goes toward benefits for citizens; National Healthcare; Required 30 days of vacation United States Free Market with gov’t trade regulations and protection for Some U.S. industries; safety and labor regulations

Wages, rents, interest, profits The Circular Flow Wages, rents, interest, profits Firms (production) Household Factor services Goods Government Spending Other countries Financial markets Government Taxes Savings Investment Personal consumption Exports Imports McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

(3) open to foreign investors The World’s National Economies Fall Inside a CONTINUUM SOUTH AFRICA NORTH KOREA HONG KONG UNITED STATES FRANCE CUBA Centrally Planned Free Market VENEZUELA CHINA UNITED KINGDOM SWEDEN SINGAPORE RUSSIA Free Market Traits: (1) lack of gov’t. regulations (2) few trade barriers (3) open to foreign investors

UNITED KINGDOM

BANGKOK, THAILAND

Cannes, France

CAMBODIA

Canada

VIETNAM

LAOS

Tuscany, Italy

Israel

Aarhus, Denmark

Ishinomaki, Japan

Nuuk,Greenland

St. Petersburg, Russia

Mosul, Iraq

RioDeJaneiro, Brazil

CUBA

SINGAPORE

VENEZUELA

SOUTH AFRICA

CHINA

NORTH KOREA

HONG KONG

UNITED STATES

RUSSIA

SWEDEN