Discussion…
• How would you define economics?• What is an economic system?• How does economics impact you?
Comparative Economics Systems
• The major economic systems are traditional economy, market economy, command economy and mixed economy.
• There are also countries that are said to have developing economies, moving from a traditional to a market economy.
Definitions• Factors of production:
– Those things necessary to produce goods and services.
» Land» Labor» Capital (money, buildings, equipment, etc.)» Management
Definitions
• Traditional economy:– An economic system in which the factors of
production are settled by rules accepted as good and correct
– Normally used to describe economic systems that pertain in societies with extensive subsistence agriculture
– Used by members of industrialized societies to describe societies deemed "underdeveloped"
Definitions• Market economy:
– An economy in which the prices of goods and services are determined in a free price system.
– A system in which buyers and sellers exchange on the basis of supply and demand.
– Also known as a capitalist economy.
Definitions
• Command economy:– An economic system in which decisions
regarding the factors of production are made by government leaders.
Command Economies
• Two types of command economies:
–Communist—strict government control of the entire society
Command Economies
– Socialist—three main goals of this type of economy:
• An equitable distribution of wealth and economic opportunity
• Society’s control, through its government, makes decisions about public goods.
• Public ownership of services and factories that are essential.
Definitions
• Mixed economy:–A combination of market, command, or
traditional economy.–A system in which free enterprise is
affected by government regulations.
Economic Decisions• All economic systems must make three basic
economic decisions:
– What and how many goods and services should be produced
– How should they be produced
– Who gets the goods and services that are produced
Economic Decision Making• These decisions are made differently in the three
major economic systems:– Traditional—habit and custom determine the
rules.
– Market—this economy is based on free enterprise, the idea that private individuals or groups have the right to own property or businesses and make a profit with only limited government interference.
– Command—the government controls the economy is this system.
Economics and Trade• Countries with varying levels of economic
development have become increasingly interdependent through world trade.
• Geographers and economists classify all of the world’s economic activities into four types:
– Primary economic activities—taking or using natural resources directly from the Earth
– Secondary economic activities—raw materials are used to produce something new and more valuable.
Economies and Trade
• Factors affecting trade:
– The unequal distribution of natural resources
– Differences in labor costs
– Differences in education levels
Economics and Trade
• Barriers to trade:– Tariffs
– Embargos
– A quota on the quantity of a product that can be imported from a country
• Many governments around the world have moved toward free trade.
Gross Domestic Product• GDP - Gross domestic product refers to
the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living.
Gross National Product
• GNP - Gross National Product is the market value of all products and services produced in one year by labor and property supplied by the residents of a country
GDP vs. GNP
• Gross National Product (GNP) is often contrasted with Gross Domestic Product (GDP). While GNP measures the output generated by a country's enterprises - whether physically located domestically or abroad - GDP measures the total output produced within a country's borders - whether produced by that country's own firms or not.