Economic System
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Economic System
A country’s economic system consists of the structure and processes that it uses to allocate it’s resources and conduct it’s commercial activities.
Types of Economic Systems
– Centrally planned economy
– Mixed economy
– Market economy
Centrally planned economy
System in which a nation’s resources are owned by the government.
Origins: the ideology that the welfare of the group is more important than individual well being. (Karl Marx).
Decline: In the 80’s nations began to dismantle communist central planning in favor of market based economy.
Failures -economic value ,Provide incentives, Achieve rapid growth, Satisfy Consumer needs.
Mixed economy
Economic system in which resources are more equally divide between private and government ownership.
Origins: the idea that a successful system must be not only efficient and innovative but should also protect society.
Decline: mixed economies are converting to market system. (Privatization).
Market Economy
The majority of nations resources are privately owned. Economic decisions are determined by supply and demand.
Origins: the belief that individual concerns should be placed above group concerns.
Features: free choice, free enterprise and price flexibility.
Governments role: enforcing antitrust laws, preserving property rights, providing a stable fiscal and monetary environment and preserving political stability.
Development of nations
The economic development is a measure of gauging the economic well being of one nations people as compared with that of another nation’s people.
National development indicators:
– national production
– purchasing power parity
– human development
National Production
Gross national product: value of all goods and services produced by country during a one year period, including income generated by both domestic and international activities.
Gross domestic product: value of all goods and services produced by a country’s domestic economy over one year period.
GDP or GNP per capita: nation’s GDP or GNP divided by it’s population.
Purchasing Power Parity
Purchasing power: the value of all goods and services that can be purchased with one unit of a countrys currency.
Purchasing power parity: is the relative ability of two countries’ currencies to buy