Terms to Know  Free Market  Command  Traditional  Mixed  Capital  Land  Labor  Natural Resources  Entrepreneur  Trade Barriers  Tariffs  Quotas  Embargo  Currency Exchange  Specialization

 While there are many terms that are used to describe the types of economies that exist in the world, most economists agree that there are four major types of economic systems.

Market economy  An economic system in which individuals own and operate the factors of production.  AKA: Free enterprise, Capitalism  United States, Great Britain, Japan

Command economy  An economic system in which the government owns and operates the factors of production.  AKA: Socialism, Communism  Cuba, China

LFS Question What is the difference between a Market Economy and a Command Economy?

Traditional economy  An economic system based upon customs and traditions. Economy is based upon agriculture and hunting.  AKA: Non-Industrialized, Agrarian societies  Chad, Haiti, Rwanda

Mixed economy  An economic system that has features of both market and command economies.

 In reality there are no pure market economies, nor are there any pure command economies. For example, even in the United States, where free enterprise reigns, the government plays a major role in the economy. Minimum wages, social security, and regulatory policies are examples of government involvement.  In China, for example, some private ownership of businesses is allowed, however the government still maintains tight control over the factors of production and prices.  While we could say that both the United States and China are mixed economies because they contain both market and command economic features, to do so would be misleading because the role that the respective governments play in the economy are quite different.

LFS Question  What type of Economy is in Japan?

Gross domestic product (GDP)  is one of the measures of national income and output for a given country's economy.  GDP is defined as the total market value of all final goods and services produced within the country in a given period of time (usually a calendar year).

Map of countries by 2007 GDP (nominal) per capita (IMF, April 2008).

Factors of Production  Land  Labor  Capital  Resources  Entrepreneur

Land  Land in economics comprises all naturally occurring resources whose supply is inherently fixed. Such as mineral deposits.

Labor (aka: Human Capital)  In economics, labor is a measure of the work done by human beings. Human capital can also refer to the skills that workers possess (the education and training the workers have had).

Capital  Capital (or capital goods) refers to items of value, it can also mean the amount of wealth a person controls.  They must have the following features to be considered capital: They can be used to produce other goods. They were produced (this is different from "land," which occurs naturally ex: minerals).

Natural resources  There are 2 types of natural resources: Renewable and Non-renewable.  Natural resources include soil, timber, oil, minerals, and other goods taken more or less from the Earth.  A nation's natural resources are very important to the world’s economy.  The reduction of natural resources has become a political and economic issue. Example: rainforest regions, which hold most of the Earth's natural biodiversity. Saving natural resources is the major focus of natural capitalism, environmentalism, the ecology movement, and Green Parties.

Scarcity  Scarcity- the problem of unlimited human needs and wants, in a world of limited resources.  In other words, society does not have enough productive resources to fulfill people’s wants and needs.

Entrepreneur  A person who has possession over a company or enterprise and assumes the risks and the outcome.

Trade Barriers  A trade barrier is a general term that describes any government policy that restricts world wide trade. The barriers can take many forms, including:  Quotas  Tariffs  Embargo

Tariffs  A tariff is a tax on goods when they cross a national border.

Quotas  An import quota is a type of trade restriction that sets a physical limit (#) on the quantity of a good that can be imported into a country in a given period of time.  For example, a country might limit foreign fruit imports to 50 tons per year.

Embargo  An embargo is the prohibition of trade (NO TRADE) with a certain country.  The goal is to isolate it and to put its government into a difficult situation, usually the effects of the embargo are able to make its economy suffer.  The embargo is sometimes used as a political punishment for some previous disagreed policies or acts.

Currency Exchange  Every country has a different kind of currency, or monetary ($) system. Some examples of African money are the Egyptian pound, the South African rand, and Chad’s franc.  An exchange rate is the price that one country’s currency has compared to another country’s currency. For example, one U.S. dollar is worth over one hundred Nigerian naira. Without an exchange rate, global trade would be impossible to conduct. Exchange rates change daily. The changes are based on factors like government stability and the strength of a country’s market.

Specialization  Specialization is the development and production of one product or service.  Specialization encourages trade and can be a positive factor in a country’s economy.

Bibliography  Everything You Need to Teach, The Middle East. InspirEd  Georgia Department of Education. Types of government Worksheets for Unit 2. 06/30/2007.  Grade Seven GPS. Georgia Department of Education. September 2, 2008.