Types of economic systems

Vocabulary notes

XIX. Read the text about the main types of economic systems.

XVIII. Before reading the text below take part in a group discussion and share your ideas with partners on the following questions.

XVII. Match the words in column A with their definitions in column B. Define the part of speech the words in column A belong to.

Look through the examples, find the meanings of the words below, consult a dictionary if necessary.

Examples:

clear _adj – ясный, чистый clear _adv – ясно clear _v – очищать, прояснять

process _n – процесс process _v – обрабатывать

Increase, group, interest, control, act, plan, program, result, rule.

A	B
1) government	a) the need or desire that people have for particular goods and services
2) individual	b) an amount of something that is available to be used
3) supply	c) a person, considered separately from the rest of the group or society
4) demand	d) a large amount of money, property (land, housing) etc that a person or country owns
5) competition	e) the money earned from work or received from investments, the government etc
6) property	f) the group of people who manage and control a country or state
7) wealth	g) a situation in which people or organizations try to be more successful than other people or organizations
8) income	h) the thing(s) that someone owns (e. g. building, land)

1. What is economic system?

2. What types of economic systems do you know?

3. What is the division of economic systems into groups based on?

enterprise _n – предпринимательство

equal _adj – равный

hire _v – арендовать

lack _n of – нехватка, недостаток ч-л

own _v – владеть

power _n– власть (но: power station – электростанция)

pure _adj – чистый (в чистом виде)

significant _adj – значительный

solve _v – решать

Economists study a great variety of economic systems existing in the world today because of numerous political and social structures. Economic system is a way of organizing economic activity. It is also a set of methods to solve economic problems.

It is usual to group all economic systems into three large categories. Traditionally, these basic types of economic systems are Market, Command, and Mixed economies.

Market economic system is also called free enterprise system, laissez-fair or capitalist system. Market economy is characterized by some important features such as private property, freedom of choice and enterprise, self-interest, competition, a reliance on the price system, a complete lack of government regulation.

· Private property states the right to own, control, and income from natural and man-made resources (land, buildings, machinery etc).

· Freedom of choice and enterprise means that individuals known as entrepreneurs are free to buy or hire economic resources, organize them for production of goods and services.

· Self-interest makes individuals and firms act in their own interests without any direction or regulation.

· Competition is the process in any market regulated by the law of supply and demand.

· Market prices are also determined by changes in supply and demand.

· Lack of government regulation is an important feature of capitalism. In free market economy, the government takes little or no part in economic activity.

There is no country with pure market economy because state authorities always take some economic decisions.

Command economy is also referred to as planned economy. This type of economy is connected with significant direct centralized control. State, government, committee, cooperative group or some other powerful authority owns and controls country’s resources – land, housing, factories, power stations, transport systems etc.

Central authority draws up a production plan and sets production goals concerning items, amount, terms and distribution. Planners use computer programs to determine production costs – for materials, labour, energy etc.

The main idea of central planning is to give all people equal rights and opportunities in distribution of wealth and income. But the history and economic experience of some countries show that this is impossible. So, ex-communist societies refused pure central planning.

Mixed economy is a result of the increasing government power and control in capitalist countries. Countries operating in mixed economies combine the elements of planned economy and the principles of market.

Private property is one of the most important parts in mixed economy. This gives people stimulus to work hard, save and invest money. Government in its turn regulates market forces or adapts to them.

Most countries in the modern world have mixed economies. As a rule, their main economic activities are organized in a decentralized way, but government makes principal economic decisions. For example, in the USA the government buys about 18% of the total market production, employs about 15% of all workers, redistributes income by means of taxation.

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