Economic Systems BBI2O

Economic System The way government works with business Three key economic questions:  What goods and services should be produced?  How should these goods and services be produced?  For whom should these goods and services be produced?

Two basic economic approaches Command Economy Market Economy

A Pure Command Economy The government is in complete control  Owns all the natural resources, farms, factories, and most businesses  Makes all economic decisions (and is solely responsible for answering the “economic questions”)  Controls wages, benefits, etc. Ex: Communist system

A Pure Market Economy Also known as Free Market, Free Enterprise, or Capitalism Buyers and sellers direct the economy  Supply and demand provide the answers to the “economic questions” Key concepts:  Profit  Competition  Private Property

A Pure Market Economy Business is free to choose what type of good/service it will sell, where it will operate, and is free to make a profit Consumers are free to buy what they want, from whom they want

The Mixed Economy No modern economy operates in a “pure” form – they are all a mix of command and free market How much the government is involved in the economy determines where on the continuum it sits Free Market EconomyCommand Economy SwedenNorth KoreaUSA

Canada In what ways are we a mixed economy?  What elements of a Free Market economy do we have?  What elements of a Command economy do we have?

Gross Domestic Product The “GDP” A measure of output (and of the strength of a country’s economy) The total value of all the goods and services produced in a country in a given period of time

Gross Domestic Product Example:  The USA’s GDP is about $14.6 Trillion  Canada’s GDP is about $1.5 Trillion  Norway’s GDP is only $413.5 Billion Does this mean that the Americans manage their economy 35 times better than Norway? Why might this not be a fair comparison?

GDP Per Capita A Country’s GDP divided by the population  The USA’s GDP per capita is $47,100  Canada’s GDP per capita is $46,300  Norway’s GDP per capita is $88,400 Is this a more accurate measure of a country’s economy?

Sectors of the Economy Agriculture  i.e. farming Industry  i.e. manufacturing Services  Examples: education, medical, legal, consulting, tourism, etc.

Exports and Imports Exports:  Things that a country produces and sells to buyers in other countries Imports:  Things that a country brings in from other countries What are some of Canada’s imports and exports?

Activity Let’s compare some different economies