Types of Economies
Many different kinds of economies are represented in the Western Hemisphere. Before the arrival of European colonizers, traditional economies were more common. Today, this type of economy can be observed in the Inuit communities of northern Canada. The goals of traditional economies include stability and security. Although many Inuit now work for the Canadian government and in the mining industry, the traditional ways of living are still widely practiced. As they have done for thousands of years, Inuit parents still teach their children how to hunt, fish, and make the things they need to live. Each member of the community depends on each other.
The most common type of economy in the Western Hemisphere today is the market economy. The United States and Canada both have market economies. In market economies, the availability of goods and services and their prices are determined by the choices of producers and consumers. Producers get to decide what goods and services to provide depending on what they think consumers want to buy. They get to set prices based on what they think consumers are willing to pay. In market economies, businesses are largely privately owned, with the goal of earning a profit. When consumers buy the goods and services that producers sell, both sides get what they want out of a transaction. Economists call this efficiency. Efficiency and freedom are the primary goals of a free market economy.
Consumers have a limited amount of money to spend. Producers have limited time, materials, and factory space. As a result, the amount of goods and services produced is also limited. Economists call this scarcity. Because of scarcity, producers and consumers have to make careful decisions about how to use their resources–including time and money. During the Great Recession in 2008, for example, millions of people lost their jobs. As a result, they had less money to spend, so they stopped buying as many things that they did not need to live.
Each of the three different kind of economies found in the Western Hemisphere are structured with different principles, values, and goals in mind.
Not all economies in the Western Hemisphere are market economies. Cuba has a command economy. In Cuba, supply and prices are largely determined by the government, not the choices of consumers and producers. The Cuban government owns most of the factories and raw materials. The goals of a command economy are security and equity. In theory, with the government making the decisions, the economy is fair for everyone and everyone gets what they need. In practice, however, command economies are rarely able to fulfill this promise.
International Trade Relationships
Countries make different goods. For example, companies in the United States make cars. Companies in Canada mine valuable minerals and metals. Often, businesses and governments will sell the goods they make to other countries. Goods that one country sells to a different country are called exports. When a country buys goods from a different country, on the other hand, it imports them.
The United States, Mexico, and Canada are each other’s most important trading partners. More than three quarters of the goods Canada exports each year are bound for the United States. The United States also imports large quantities of Canadian oil, natural gas, electric power, and uranium. Mexico is the United States’ third largest source of imports. Mexico’s biggest exports include car parts, electrical components, and other manufactured goods.
The United States does not just import goods from Mexico and Canada. They are also two of the United States’ biggest export partners. The most important industries in the United States include technology, motor vehicles, aerospace, electronics, telecommunications, lumber and mining.
Countries import and export goods from other countries across the globe.
The United States and Cuba, on the other hand, have a very different relationship. In 1961, after Communist dictator Fidel Castro came to power, the United States stopped trading with Cuba and imposed economic sanctions. Cuba’s most important trading partners are China and Spain. It exports cigars, raw sugar, rum, and metals such as zinc and nickel.
1. Explain the difference between a command economy and a market economy.
2. What is scarcity? How does it affect producers? How does it affect consumers?
3. Choose one other country to research. What type of economy does it have? What other countries does it trade with? What are its biggest exports?
1. A command economy is an economic system where the government controls the production, distribution, and pricing of goods and services. The government sets the goals and priorities for the economy and makes decisions on what will be produced and how resources will be allocated. In contrast, a market economy is based on supply and demand, where the availability and prices of goods and services are determined by the choices of producers and consumers in a free market. Producers have the freedom to decide what to produce and set prices based on consumer demand, and consumers have the freedom to choose what to buy.
2. Scarcity refers to the limited availability of resources such as materials, time, and money. It affects producers by forcing them to make choices and allocate resources efficiently. Producers must decide which goods and services to produce with their limited resources. They need to consider factors such as production costs, consumer demand, and potential profits. Scarcity affects consumers by limiting their purchasing power. With limited money, consumers must make choices about which goods and services to buy and which to forgo. They need to prioritize their needs and wants based on their available resources.
3. China has a mixed economy with elements of both a market economy and a command economy. While economic reforms in the late 20th century introduced market-oriented reforms, the Chinese government still exerts significant control and intervention in various sectors of the economy. China has become one of the world's largest trading nations, with its major trade partners including the United States, European Union, ASEAN countries, Japan, and South Korea. Its biggest exports consist of manufactured goods such as electronics, machinery, textiles, and furniture.
Make it shorter and rephrase it into 5th grade sentences.
1. A command economy is when the government controls what is made and how it is sold. A market economy is when producers and consumers make choices on what is made and how it is sold.
2. Scarcity means there is not enough of something. It affects producers by making them decide what to make with limited resources. It affects consumers by making them decide what to buy with their limited money.
3. China has a mixed economy with some control from the government and some choices from producers and consumers. It trades with many countries like the United States, European Union, and Japan. Its biggest exports are things like electronics, machinery, and clothing.