Questions & Answers About Economic Systems

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15Katey

15Katey

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There are quite a few posts about economics in this forum and I'd like to take this opportunity to give my take on a few textbook questions that get asked in regards to economic systems. If you aren't sure what economic systems are, please read through this post. You'll gain some wonderful knowledge. And if you're curious where these questions are coming from, you can check out the following list of posts here on this site:

Traditional, Command & Market Economies
What Are the Most Economically Free Nations?
How Do Regulations Fit into Economics?
What is Globalization?

Okay, here are the questions and my answers to them. Enjoy!

Answers to Questions About Economic Systems

1. The previous posts define private enterprise as a characteristic of market-oriented economies. What would public enterprise be? Hint: It is a characteristic of command economies.

There are actually many different examples of public enterprises, even in nearly total market economies. By definition, a public enterprise is one where the state owns all are part of the business. The state then controls the enterprise via a public authority. Examples of these types of enterprises are closer than you think. The roads you drive on are likely owned and managed by some form of government. Various types of utilities may be public owned. Telecommunications, transportation, fuel, just to name a few. Think subways, buses, bridges. They're all publicly owned. A few more are the United States Post Office, various highway departments, the U.S. interstate highway system, and toll road authorities. The list goes on.

2. Why might Belgium, France, Italy, and Sweden have a higher export to GDP ratio than the United States?

For the more complete answer to this question, you'll definitely want to see the bottom paragraph of the first post in this thread. For the short answer, these nations may have higher export to GDP ratios than the United States because they're markedly smaller economies. When a smaller economy has a resource they can offer the world, that they can't fully use themselves (because there simply aren't enough people), they can sell abroad. This will increase their exports. In the previous post, a copper mine was used as an example. In this post, France's wine industry can be used as an example. If France can produce much more wine because of its robust wine industry than it can consume, that wine can be sold across borders, driving up the nation's exports. The United States can easily absorb all the wine it produces internally. With 330,000 million people in the nation, all the wine that's grown nationally can be sold nationally. Because of this, exports of wine may be low for the United States.

3. What are the three ways that societies can organize themselves economically?

The three ways societies can organize themselves economically are traditional, command, and market. For a full explanation of each, please see this thread.

4. What is globalization? How do you think it might have affected the economy over the past decade?

Globalization is the buying, selling, and trading of goods and services internationally. Please see this post for a full description. This phenomenon most likely has grown the entire U.S. economy over the past decade, but not without it's setbacks. Because the U.S. is a consumer based economy, it imports more than it exports. By importing lower priced goods, manufacturers have been put out of business in the United States. But, since prices have been lower, the consumer benefited. Consumer driven economies are ultimately hollowed out by cheap imports. Eventually, much of the manufacturing and production bases will disappear locally and the population won't have the employment prospects it once had. Because of this, unemployment will grow and incomes will drop. Eventually, even robust economies such as the one in the United States won't be able to support themselves and may fail, turning into third world nations like so many others. Then, once prices and demand fall due to depression, manufacturing will return and the economy will transform itself into an export one.

5. Why do you think that most modern countries’ economies are a mix of command and market types?

Mixed economies consist of both public and private sectors. There are good reasons to include both and those reasons revolve around public interest and profit. The private sector is allowed to profit, but is taxed higher when those in charge deem profit to become excessive. The public sector is generally non-profit and exists in the public interest. Government itself is non-profit. Roads and bridges are non-profit. The patent and trademark office in Washington DC is non-profit and so are many other governmental departments and institutions. Regarding the private sector, profits energize entrepreneurs and stimulate growth and innovation. Most of the modern innovations and much of what we rely on today as societies has been invented and created by entrepreneurs.

6. Can you think of ways that globalization has helped you economically? Can you think of ways that it has not?

Simple put, because of globalization, I am able to buy more with less. I can also tap into various markets around the globe to expand my personal purchases as well as business purchases. Goods and services I may not have access to locally, I can now purchase abroad. The downside of this is that, being a computer programmer, my own job may be outsourced to a less expensive alternative. India is known for inexpensive programming services. So no matter how cheap my import options may be, I may soon not have any money to buy them.
 
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