Latin American Economic Systems Cuba Brazil

Review . . . Types of Economies TYPES OF ECONOMIC SYSTEMS Definition Key Terms Countries 1) Market economy An economic system in which individuals own and operate the factors of production. Free enterprise Capitalism 2) Command economy An economic system in which the government owns and operates the factors of production. Socialism Communism Cuba China 3) Mixed economy An economic system that has features of both market and command economies. United States Great Britain Japan 4) Traditional economy An economic system based upon customs and traditions. Economy is based upon agriculture and hunting. Non-Industrialized Agrarian societies Aborigines (Australia)

Economic Continuum No system has a pure command or market economy. All economies combine aspects of both of the command and market economic systems – to different degrees. USA has some government owned businesses – schools, public colleges, postal services – in addition to the privately owned businesses.

What’s Your Economy? Cuba – command economy Government owns all resources Government decides what and how much is to be produced Struggled since the breakup of the USSR Brazil – mixed economy Strong agricultural, mining, manufacturing & service industries Strongest economy in South America Government controls health care and postal services

Specialization & Opportunity Cost Focus on producing one or two goods really well Advantages Produce goods in less time Produce goods for less money Opportunity Cost Value of what is given up when a choice is made Example Country X makes chocolate Country Y makes cars Country Y needs to import chocolate Opportunity cost is the money Country Y could have made if they made their own chocolate

Trade Barriers Tariff – tax Embargo Quota A trade barrier that is used to discourage trade with foreign companies This type of barrier would restrict trade Created to increase the prices of imported goods and protect a country’s own industries from foreign competition Embargo Forbidden trade with another country This type of barrier would STOP the importing of an item Can be put in place for safety reasons . . . Unsanitary conditions – lead paint Also used for political reasons . . . Countries that violate human rights Quota Restrictions on the amount of a good that can be imported into a country This type of barrier can create shortages and an increase in price. EU placed a quota on Chinese imports of clothing when France and Italy, with strong textile industries, complained about cheap import prices.

NAFTA (North American Free Trade Agreement) 3 countries involved USA, Mexico, Canada Purpose Increase trade between member nations by creating a large free-trade zone (remove trade barriers) Key Functions – between member nations Eliminate tariffs on goods shipped Remove restrictions on investment Remove custom barriers at border crossings (make it easier for trucks to pass into Mexico) Establish tough standards for environmental, health and safety regulations in industries Improve working conditions

Economic Growth 4 factors for economic growth Entrepreneurship Ideas, innovation and risk involved in starting a business Land Capital - Factories, machines, etc. Labor - Human capital How is economic growth measured? Gross Domestic Product (GDP) Total market value of the goods and services produced by a country’s economy in a specific year. Used to determine the health of a country’s economy and compare it to other countries. Strongest in Latin America – Brazil and Mexico Weakest in Latin America – Haiti and Bolivia

How does a country raise its GDP? Invest in human capital Education and skills training Smarter people leads to a more productive workforce Increase economic growth. Literacy rate is used to determine the educational level of people . . . Higher the literacy rate. . . Higher the GDP Widespread poverty and lack of education in Latin America Many students have to work instead of go to school. Invest in capital resources Provides workers with the most current and updated tools. New factories, computers, roads Increases productivity and economic growth

What role does natural resource play in the success of a country’s economy? Fuel for a country’s industries. Source of income when exported. Brazil Rich mineral resources like iron ore (makes steel) Fertile soil, plentiful forests, rivers Mexico and Venezuela Oil deposits Have more than they need – sell to other countries

What role do entrepreneurs play in the success of a country’s economy? Generate new ideas Invest in human, capital and natural resources Willing to take risks Help countries adapt to changing trends In Latin America . . . Unemployment is high among young adults Developing classes to develop entrepreneurship A lot of “red-tape” . . . 4 months to start a business in Venezuela Starting a business is viewed as a way to get out of poverty!