European Economic SystemsUnited KingdomGermanyRussia

Review . . . Types of Economies

TYPES OF ECONOMIC SYSTEMS

Definition Associated Terms Examples in Practice

1) Market economy An economic system in which individuals own and operate the factors of production.

Free enterpriseCapitalism

2) Command economy An economic system in which the government owns and operates the factors of production.

SocialismCommunism

CubaChinaLaos

3) Traditional economy An economic system based upon customs and traditions. Economy is based upon agriculture and hunting.

Non-IndustrializedAgrarian societies

ChadHaiti

Rwanda

4) Mixed economy An economic system that has features of both market and command economies.

United StatesGreat Britain

Japan

Economic Continuum•No system has a pure command or market

economy. All economies combine aspects of both of the

command and market economic systems – to different degrees.

▫USA has some government owned businesses – schools, public colleges, postal services – in addition to the privately owned businesses.

United Kingdom• What to produce?

Similar to the USA . . . Largely a service based economy Extremely efficient agricultural sector

• How to produce? Industries have much freedom Nationalize some industries – banking

• For whom to produce? Private sector provides goods and services for domestic

and international markets

• Where are they on the continuum? Far to the market side

Germany• What to produce?

Export based economy Focused on manufacturing and commodities

• How to produce? Businesses are largely privately owned and independent Increasing involvement of government in financial sectors.

▫ Still trying to improve the East German economy to match the West German economy.

• For whom to produce? Exports are the primary focus Billions of dollars are transferred to East German states to help

modernize and update factories

• Where are they on the continuum? Market side . . . But not as far as the UK . . . Closer to a command

economy.

Russia• What to produce?

Government is still largely involved in the economy Must approve any investments larger than 50 million rubles.

• How to produce? Large scale production changes are difficult due to the

immense bureaucracy.▫ Some movement towards modernizing factories and agricultural

equipment.

• For whom to produce? Low tax rates to improve domestic purchases Trying to allow for market interactions

▫ High tariffs and minimal protection of private property make this difficult.

• Where are they on the continuum? Roughly dead center on the continuum

The Continuum•These 3 systems are all mixed

economies . . . Leaning mostly towards a market system.

They do have some elements of a command economy.

Review . . . Key Concepts• Tariff – tax

▫ A trade barrier that is used to discourage trade with foreign companies

▫ This type of barrier would restrict trade▫ Created to increase the prices of imported goods and protect a

country’s own industries from foreign competition

• Embargo▫ Forbidden trade with another country

▫ This type of barrier would STOP the importing of an item▫ Can be put in place for safety reasons . . . Unsanitary conditions – lead paint▫ Also used for political reasons . . . Countries that violate human rights

• Quota▫ Restrictions on the amount of a good that can be imported

into a country▫ This type of barrier can create shortages and an increase in price.

▫ EU placed a quota on Chinese imports of clothing when France and Italy, with strong textile industries, complained about cheap import prices.

Summarizing Activity• Is it a QUOTA, EMBARGO or TARIFF . . . .

Only 3,000 pairs of American blue jeans can enter France.

The USA charges an extra 10 cents per pound on bananas from Costa Rica.

No Brazilian beef can be sold in Spain.

Only 10,000barrels of oil can be delivered from Saudi Arabia to Italy this month.

The EU will not accept any products from an African nation because its government will not allow free speech or freedom of religion.

Economic Growth

• 4 factors for economic growth▫ Land▫ Capital

Factories, machines, etc. ▫ Labor

Human capital▫ Entrepreneurship

Ideas, innovation and risk involved in starting a business

• How is economic growth measured?▫ Gross Domestic Product

(GDP) Total market value of the

goods and services produced by a country’s economy in a specific year.

▫ Used to determine the health of a country’s economy and compare it to other countries.

• How does a country raise its GDP?▫ Invest in human capital

Education and skills training Smarter people leads to a more

productive workforce▫ Increase economic growth.

Literacy rate is used to determine the educational level of people . . .

▫ Higher the literacy rate. . . Higher the GDP

▫ Invest in capital resources Provides workers with the most

current and updated tools.▫ Increases productivity and

economic growth

• Examples . . . ▫ Germany . . . High GDP

Invested in education and vocational schools

▫ Russia and Ukraine . . . Low GDP Rebuilding economies after

gaining their independence in 1990’s

▫ Ukraine had little money for schools and teacher salaries.

▫ Russia had outdate machines and technology in their manufacturing plants.

• What role does natural resource play in the success of a country’s economy?▫ Fuel for a country’s industries.▫ Source of income when exported.

▫ Examples United Kingdom

▫Coal, oil, gas

Germany▫Rivers, forests, large deposits of coal and iron ore

Russia▫Located in remote areas▫Hard to develop due to climate and transportation

• What role do entrepreneurs play in the success of a country’s economy?▫ Generate new ideas▫ Invest in human, capital and natural resources▫ Willing to take risks▫ Help countries adapt to changing trends

Do not have as much entrepreneurship activity as the USA or developing countries . . .

▫Due to high taxes, lots of regulations and job security.

▫The EU is trying to change this through reducing taxes and regulations on small businesses.

Let’s Practice . . .

•GDP chart worksheet. . .