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ECONOMIC
SYSTEMS

Terms to Know

Capitalism

Free Market
Command
Traditional
Mixed
Capital Resources
Land
Human Resources

Natural Resources
Entrepreneur
Trade Barriers
Tariffs
Quotas
Embargo
Currency Exchange
Specialization

Three Problems
Every society has three
problems:
1.How do we decide who
gets what resources ?
2. Who uses which
resources
3. What happens to
those people who cant
get what they want,
given limited resources?

Three Economic
Questions

What and how much


will be produced? .
(Scarcity- A limited
amount of materials to
supply an unlimited
demand)
How will it be
produced? There are
many ways to produce
a desired item.
For whom will it be
produced?

There are only FOUR


TYPES
There are many
words used to
describe economics;
but there are really
only four typesTraditional, market,
mixed and command.

Market Economy
An economic system in
which individuals own
and operate the factors
of production. There
are really NO complete
market economies
AKA: Free
enterprise,
Capitalism
The closest is Hong
Kong

Market Economies
Resources are owned and
controlled by individuals.
Economic decisions are made by
individuals competing to earn
profits.
Individual freedom is considered
very important.
Economic decisions are made by
the basic principals of supply and
demand.
Profit is the motive for increasing
work rather than quotas.

Market Economies
Also called capitalist
economies, there are
many economic
freedoms.
There is competition
among businesses
Competition determines
price which increase the
quality of the product.

Command
Economy
An economic

system in which the


government owns
and operates the
factors of
production.
AKA: Socialism,
Communism
Cuba, Sudan, North
Korea, Saudi Arabia

Command Economies
The government or other
central authority makes
decisions and determines
how resources will be used .
Change can occur relatively
easily.
There is little individual
freedom.
There is no competition.
Businesses are not run to
create a profit.

Command Economies
Consumers have few
choices in the market place
Factories are concerned
with quotas-making
enough for everyone if
possible.
Shortages are common
because of poorly run
factories and farms.
The government dictates
the job in which you work

Command Economies
The government sets
the prices of goods and
services
Examples of command
economies: Cuba,
North Korea and
Vietnam

Traditional
economy

An economic system based upon customs and


traditions. Economy is based upon agriculture and
hunting. They practice subsistence farming where
they grow just enough to feed their families.
Traditional economies are found in rural, nondeveloped countries
Some parts of Asia, Africa, South America and the
Middle East have traditional economies
Customs govern the economic decisions that are
made
Technology is not used in traditional economies.
AKA: Non-Industrialized, Agrarian societies
Chad, Haiti, Rwanda, parts of India, Indonesia

Traditional economy
Farming, hunting and
gathering are done
the same way as the
generation before.
Economic activities
are usually centered
toward the family or
ethnic unit
Men and Women are
given different
economic roles and
tasks.

Mixed
economy
Economy where the
government and
people both are
involved in the running
of the economy=has
features of market
and command.

Mixed Economies
Government and
individuals share the
decision making
process.
Government guides and
regulates production of
goods and services
offered
Individuals own means
t
Gov
&
of production.
pl e
o
her
e
t
P
e
g
to
k
r
o
Protects consumers andw
workers from unfair
policies.

Command or Market Economies???


There are no purely Market or
Command economies.
Most economies have some
government intervention like:
minimum wages, social security, and
regulatory policies are examples of
government involvement.
China maintains control of many of
the factories, but today allows
private ownership.
The United States government
allows private ownership, but
controls wages and more.

Gross domestic product (GDP)


The total amount of
money that a nation
makes in a year after
expenses.
GDP tells us how
developed a nation is.

Gross Domestic Product Per


Captia
For our purposes this
year we will look
closely at GDP per
capita-or how much
money a person
makes in a year.
This is always an
average-total money
divided by the
population.

Factors
of
Producti
on
Human Resources
(Human Capital)
Capital ($$$)
Natural Resources
Entrepreneur

Human Resources (Human Capital)


The health,
education,
experience, training,
skills and values of
people.
Employees-humans
needed because
machines cannot do
all the jobs.

Building a Workforce
How a country manages is
productive resources makes a
big difference in the strength of
its economy.
Investing in HUMAN CAPITAL
will pay off for years to come. As
humans increase their knowledge
they are capable of completing
more complex tasks which are
more valuable to businesses.
They can also make more $$$.

Capital
Resourc
es
Resources made and
used to produce and
distribute goods and
services: examples
include tools,
machinery and
buildings.

Natural resources
Gifts of nature that
can be used to
produce goods and
services.
AKA: Land.
There are 2 types of
natural resources:
Renewable and Nonrenewable.
Natural resources include
soil, timber, oil, minerals,
and other goods taken
more or less from the

Entrepreneur
One who draws upon
their skills and initiative
to launch a new
business venture with
the aim of earning a
profit. Often a risktaker, see opportunity
when others do not.

Entrepreneur
Why start your own
business?
Profit is a company's
earnings after all
expense are paid.
Profit provides incentive
for entrepreneurs.
Making money, pride in
your idea and product.

Trade Barriers
A trade barrier is a general
term that describes any
government policy or
regulation that restricts
international trade.
These barriers make sure that
local businesses are not
destroyed by foreign products.
The barriers can take many
forms, including:
Quotas
Tariffs
Embargo

Tariffs
1.

2.

A tariff is a tax on
goods when they
cross a national
border.
A tariff makes sure
that prices of foreign
and local made
products are
competitive so that
both sellers can
compete.

Quotas
An import quota is a
trade barrier that limits
how many of a good
can be imported into a
nation at a given time.
Quotas protect local
farmers and
businesses and keeps
competition alive.

Embargo
An embargo is the prohibition
of trade with a certain
country, in order to isolate it
and to put its government into
a difficult internal situation,
given that the effects of the
embargo are often able to
make its economy suffer from
the initiative.
The embargo is usually used
as a political punishment for
some previous disagreed
policies or acts.

Specialization or Division of Labor


Each person specializes in
one occupation, to become
the best at that job as
possible, while others do
the same with other
occupations. Basically, it's
a working society that does
many different jobs.
Example: A few people do
farming, a few people do
pottery, and a few people
are blacksmiths. The
society works together to
make the society wealthier

Currency Exchange

Forms of Currency

Shells
Precious Metals
Silver
Gold

Bills or Notes
Paper $ (Dollars, Peso, Euro, and so on)

Plastic
Debit and Credit Cards

The Future??????

Does every country have their own money???

Currency Exchange

Most common contact with foreign exchange occurs


when we travel or buy things in other countries.
Suppose a U.S. tourist travelling in London wants to
buy a sweater. Price tag is 100 pounds (Symbol for
pounds: ).
Current exchange rate Price of sweater in dollars
$1.45 to 1 100 x 1.45 = $145.00
$1.30 to 1 100 x 1.30 = $130.00
$1.60 to 1 100 x 1.60 = $160.00
$2.00 to 1 100 x 2.00 = $200.00
For businesses or governments that trade billions
of dollars, even small changes in the exchange
rate become significant.

Currency Exchange
Exchange rates are an important
consideration when making
international investment decisions. The
money invested overseas incurs an
exchange rate risk. Exchange rates have
an affect on the economics of the nation.
Affects the prices of imported
goods.
Affects the overall level of price and
wage inflation.
Influences tourism patterns-people go
where their $ is worth more
Will influence consumers buying
decisions and investors long-term
commitments.

Personal Money
Management

Money is the medium of


exchange to buy goods and
services.
Your income provides you with
money to spend on whatever
you choose.

Personal Money
Management

People use CREDIT to buy


something now and pay for it
later.
When you use CREDIT, you have to
pay the amount you borrowed plus
and additional amount of interest.
Banks make money from interest
payments interest is a fee paid
for the use of someone elses
money.

Making Your Money


Grow!

Putting money in a
bank or credit union
can make you EARN
interest.
Saving money allows
you to increase your
money by INVESTING.

Making Your Money


Grow!

Ways to Invest Your Money:

Stocks and Bonds


Real Estate
Natural Resources
Collectibles
Business
(your own or someone elses)

Bibliography
Federal Reserve of New York.
http://www.ny.frb.org/education/fx/foreign.html
Retrieved March 13, 2009
Trading Around the World, Indiana Department of Ed. 2009.

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