Economics is the science that deals with the production, distribution, and consumption of goods and services, or the material welfare of humankind. There are many different types of economic systems but we going to focus on three: –Traditional –Command –Market

A traditional Economy: – An economy based upon the customs and habits of the past. This will decide how goods will be produced, distributed and consumed within the country. Examples are only found in historical settings. Native American and other tribal groups used a traditional economy to organize their societies.

In a command economy, the government makes the basic decisions such as which goods and services to produce and the prices and wages. The government usually owns the businesses and the farms. Examples today of a command economy: –Cuba –North Korea –Former Soviet Union

In a market Economy, individuals or corporations generally own businesses and farms. Each business or farm decides what it wants to produce. Decisions are guided by changes in the prices that occur between individual buyers and sellers in the marketplace. Other terms to describe a market economy: free enterprise, capitalism, laissez-faire. Examples – United Kingdom – United States – Germany

There are NOT really any pure market or command economies…most are what is as a Mixed Economy. –A mixed economy is when a country has characteristics of both systems. –If the US was a pure market economy, we would not have any government regulation and there would be no laws to protect workers from unfair bosses. Types of Economies Command Economy Market Economy CubaRussia Germany United Kingdom United States

Trade is the voluntary exchange of goods and services among people and countries. Many countries benefit from trade, however, some countries may have a limited relationship when it comes to trade. –Countries can place trade barriers: Embargo, tariff or Quota

 Tariffs – a tax on imports.  The United States’ largest source of income up until WW1 was from tariffs they placed on imports. .  Embargo - a government order stopping trade with another country.  Ex. The US placed an embargo on Japan before WW2 in an effort to support China. Japan retaliated with the bombing of Pearl Harbor. Quotas – a limit placed on the number of imports that may enter a country. Ex. Russia (a non-EU country) produces a lot of steel. EU countries worry that if too much Russian steel comes into EU nations, the EU steelmakers will lose money. Therefore a quota has been placed on the amount of Russian steel allowed in the EU countries.

Free-trade Zones: The European Union is a large free-trade zone, meaning there are no tariffs placed on imports. This allows goods to be bought at a lower price. In Russia, there are many tariffs placed on imports in hopes that buying cheaper food from Russian farmers will help boost business and the economy.

 Currency: The money people use to make trade easier.  Most countries have a different currency BUT…in the EU ◦ Most of the countries share the EURO. ◦ This allows for a free-trade Zone to exist between countries of the EU. ◦ See, when a country has to exchange its money for the other in order to trade, banks usually charge a fee.  Example: A farmer in Greece is selling olives to a restaurant in Russia. Russia has Rubles and pays for the olives in Rubles. In order for the Grecian to get his money back into Euros, he has to go to the bank where they charge a fee to exchange the currencies. If the Grecian traded within the EU, no fee would have to be paid.

The Euro Russian Rubles

 One of the main goals for a country is to increase its Gross Domestic Product(GDP). Your gross domestic Product is the total value of all the goods and services produced in a country in one year….so…a higher GDP can result in a higher Standard of living for the people in the country.  There are many ways to increase your GDP…

 1 United States 16,244  — European Union 16,092[5]  2 China 12,261  3 India 4,716  4 Japan 4,575  5 Germany3,167  6 Russia2,486  7 Brazil 2,330  8 United Kingdom 2,312  9 France2,252  10 Italy 1, Mexico1, South Korea 1, Canada1, Spain1, Indonesia1, Turkey1, Iran Australia Taiwan Poland802

 Human Capital: ◦ To increase the GDP, countries must invest in human capital: resources that include the education, training, skills and health of the workers in a business or country. ◦ Increasing the literacy rate is part of the training and educating a country must do to create a higher standard of living.  Physical Capital: ◦ Investing in factories, machines, technologies, buildings, and property needed by the businesses to operate. ◦ EU countries have been investing in physical capital for a while now which has placed them ahead of Russia, who is now started to invest in the companies to get the help they need.

 Natural Resources : ◦ Or “gifts from Nature” help to make a country self-sufficient and allows a country to trade with others to get the goods and services they need.  Example: Russia is a major exporter of oils and natural gas. Money from these resources has helped many Russians become wealthy.  Being an Entrepreneur: ◦ Entrepreneurs risk their own money and time because they believe their business ideas will make a profit. ◦ An entrepreneur brings together natural, human and capital resources to produce goods or services for business. ◦ Some places are better than others for starting businesses. Government can play a huge role when it comes to the law behind business. ◦ However, the more entrepreneurs, the more an economy can grow. As businesses grow, jobs and trade increases.