Market Economies • In a pure market economy, decisions are made in free

markets by the interaction of supply and demand. • In a market economy, private citizens—not the government

—own the factors of production: natural resources, capital, labor, and entrepreneurship.

• A market economy is decentralized—decisions are made by all the people, not just a few. No one coordinates these decisions.

• There is also no government regulation of business.• Dividing GDP by a country’s population yields the country’s

per capita GDP. – By expressing GDP in terms of each person, we can compare one

nation’s economic success to another without regard to the size of the two economies.

Command Economies • In a pure command economy, the central

government makes the major economic decisions. – Individuals have few choices and little influence over

the economy. This system has also been called a controlled economy, socialism, or communism.

• Socialism is the belief that the means of production should be owned and controlled by society, either directly or through the government.

• Karl Marx believed industrialized nations were a class struggle and that eventually socialism would evolve into communism eliminating the need for government.

• In a command economy the government tells what workers what to produce, when to produce it, and who to produce it for.

Mixed Economies • A mixed economy combines basic elements of

a pure market economy and a command economy.

• Most countries have a mixed economy that combines private ownership of property and individual decision making with government intervention and regulations.

• In the United States, individuals make decisions based on market phenomena.

• However, the governments make laws to protect private property and regulate areas of business.

The Transition From a Command Economy • Today many countries are shifting from one

economy to another to achieve maximum gain for their country.

• By 1991 all command economies were moving toward market or mixed.

• Soviet Union’s Gosplan decided which products would be produced but made many mistakes.

• Indecision and costly mistakes led to Soviet countries breaking away from the union and becoming independent economically shifting to market economies for economic relief.

• China made the transition in the 1980s implementing market ideas into its “communist’ government.

Developing Countries • Developing countries are countries whose

average per capita income is only a fraction of that in more industrialized countries

• Most countries trying to make this change have traditional economies, in which economic decisions of what, how, and for whom to produce are based on custom or habit.

• Most developing countries have high population rates and usually are landlocked keeping ideas and resources from coming through regularly.

• Most have fell victim to civil wars that destroyed transportation measures and left many of these countries in shambles.

• Others have borrowed too much money and will be in debt for many years to come.

• Corruption in government keeps many of these countries from developing.

• They lace their borders with land mines to keep people from leaving and others from coming in.

• The International Monetary Fund (IMF) and World Bank loan money to these countries and in 1999 many cancelled out the repayment of loans so that these countries could reestablish social programs.