Economic System

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 nation's 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 country's currency.

Purchasing power parity: is the relative ability of two countries’ currencies to buy