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

2. 1. The ECONOMIC Questions
How a nation answers these questions determines their economic system.
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3. What should be produced?

4. How should goods and services be produced?

5. 3. Who will consume the goods and services?

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

7. 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

8. The Different Economies

9. 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.

10. 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

11. Free Market

12. “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!

13. 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

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

15. Central Market Economy

16. 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

17. 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.

19. Modern Economy

20. 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

21. 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.

22. 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

23. 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.

25. (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

27. UNITED KINGDOM

28. BANGKOK, THAILAND

29. Cannes, France

30. CAMBODIA

31. Canada

32. VIETNAM

33. LAOS

34. Tuscany, Italy

35. Israel

36. Aarhus, Denmark

37. Ishinomaki, Japan

38. Nuuk,Greenland

39. St. Petersburg, Russia

40. Mosul, Iraq

41. RioDeJaneiro, Brazil

42. CUBA

43. SINGAPORE

44. VENEZUELA

45. SOUTH AFRICA

46. CHINA

47. NORTH KOREA

48. HONG KONG

49. UNITED STATES

50. RUSSIA

51. SWEDEN