Transcript Economic Understandings Powerpointx

Economic Understandings
SS7E1---Analyze different economic systems
a. Compare how traditional, command, and
market economies answer the economic
questions of (1)what to produce, (2) how to
produce, and (3) for whom to produce.
Traditional Economy
• Most economic decisions made based on
customs and habits of how decisions were
made in the past.
• people swap goods they produce with people
who produce other items
• Also known are bartering
• No country is known as a traditional economy
• Common in rural areas (particularly in Africa)
Command economy
• A centralized economy
• Government planning groups decide what to
produce, prices of goods, and wages of
workers
• Also decide what jobs workers will do
Market economy
• Economic decisions made by individuals who
decide what to produce and what to buy.
• Also known as capitalism, free enterprise, or
laissez-faire ( French phrase---allow to do as
they please)
• Entrepreneur--- take risks to start businesses--found in this system
Mixed economy
• Nearly all economies are mixed---have some
individual freedoms to operate in business and
the government has some control (regulations)
• Reasons for regulations: environmentalism--taking care of the environment--- Example:
regulating oil drilling as to not harm the ocean
and fishing industry
• Socialism---protecting workers (safety); consumer
safety ( making sure products and services are
safe)
Voluntary trade
• This is the key to a healthy market economy
• Both parties gain from the exchange and
voluntarily enter into the trade
• Encourages people and industrial planners to
specialize in producing things the market
demands
• Specialization leads to production that is more
efficient and profitable (doing what you do
best!)
Specialization
• Producing what you do best and that are in
demand on the world market
• Most countries in Africa today are trying to
find products they can produce.
• They are trying to diversify (do different
things)
Trade Barriers
• Anything that slows down or prevents one
country from exchanging goods with another.
• Tariff--- a tax on goods when they are imported
• Purpose: to make imported item more expensive
than similar item made locally
• Example: citrus fruits in Florida will be cheaper
than citrus fruits imported from foreign
countries---consumers more likely to purchase
cheaper citrus fruits
Trade Barriers (continued)
• Quota--- A limit on the amount of foreign goods
allowed into a country
• Purpose: More local goods on the market encourages
local people to buy local goods
• Also can be a limit on the amount of a particular
product that can be produced
• Example: OPEC places a quota on the amount of oil
each member nation can produce for the world
market.
• Purpose: to regulate the supply and the price of oil
• Goal: to make as much profit as possible.
Trade Barriers (continued)
• Embargo--- when one country announces it
will no longer trade with another country
• Purpose: to isolate the country and cause
problems with their economy until that
country does what the other wants them to
do politically.
• Example: Countries in the United Nations used
an embargo against South Africa to help bring
apartheid to an end.
• Human capital---knowledge and skills that make
it possible for workers to earn a living producing
goods and services.
• Gross Domestic Produce (GDP)--- the total value
of all goods and services produced by a country in
a given year
• Per Capita GDP--- determined by dividing the
GDP of a nation by its population
• GDP per capita more accurate measure of the
standard of living within a country.