ECONOMICS IN EUROPE

SS6E5 The student will analyze different economic systems. SS6E6 The student will analyze the benefits of and barriers to voluntary trade in Europe.

SS6E7 The student will describe the factors that cause economic growth and examine their presence or absence in Europe.

ELEMENTS

Compare how traditional, command, and market economies answer the economic questions of (1) what to produce, (2) how to produce, and (3) for whom to produce.

Explain how most countries have a mixed economy located on a continuum between pure market and pure command.

Compare and contrast the economic systems found in the United Kingdom, Germany and Russia

Explain how specialization encourages trade between countries. Compare and contrast different types of trade barriers, such as tariffs,

quotas, and embargos. Explain why international trade requires a system for exchanging

currencies between nations. Explain the relationship between investment in human capital

(education and training) and gross domestic product (GDP). Explain the relationship between investment in capital (factories,

machinery, and technology) and gross domestic product (GDP). Describe the role of natural resources in a country’s economy Describe the role of entrepreneurship

ESSENTIAL QUESTIONS

How do the three types of economic systems (traditional, command, and market economies) answer the questions of what, how, and for whom to produce?

How do most countries strike a balance between having a pure market and pure command economy?

What are the similarities and differences between the economic systems in the United Kingdom, Germany and Russia?

How does specialization encourage trade between countries? How do trade barriers (tariffs, quotas, and embargoes) hinder

voluntary trade from occurring between countries? Why is it necessary to exchange currencies for nations to trade? How does the European Union encourage voluntary trade among

its members? What is the relationship between capital, human capital

investment, and Gross Domestic Product (GDP)? How does the unequal distribution of resources affect European

countries? What is an entrepreneur?

What is an Economic System?

Every society, whether a country, state, city, town, has an economic system

An economic system is how a society organizes the production, consumption and distribution of goods and services

Systems of Economy

There are three main types of economic systems Traditional

Found mostly in societies that are based on farming People produce enough goods to survive

▪ Either by farming, gathering or hunting Make their own clothes and tools Anything extra is usually traded

Command Government controls what is produced, how things are produced Government has all the resources and dictates what is to be made and

who gets the product▪ Decisions made on wealth, class status or by position in a waiting line

Market Based on what the consumers of the country want to buy and sell Supply and demand determines what is produced and how it is produced People may own their own businesses Who gets a product determines how much they can afford to buy it

Countries with Different Systems

NORTH KOREA

PAKISTAN

UNITED STATES OF AMERICA

The Idea of Mixed Economy Most countries in the

world have a mixed economy Most are in between

command and market economies

Because of growing populations, citizens acquiring more rights, the addition of resources and government changes, countries have moved towards mixed economies

Examples of countries with mixed economies United States England France South Africa

Mixed Economy in action

Economic System of the United Kingdom

The U.K. has a mixed market economy and it is the second largest economy in the European Union. The U.K. has most of its GDP come from banking, insurance and businesses under private ownership. The government still controls medicine and welfare, but the human capital of the U.K. is very high, thanks to skilled workers in technology, education and entrepreneurship.

Economic System of Germany

Germany has a type of mixed economy called a social market economy. The government controls some things, but industry mainly brings in money to Germany. They have a social welfare system for the poor, and their human capital is very high, as education is stressed greatly. Germany has the strongest economy in Europe today.

Economic System of Russia

Russia has a mixed market economy, and it is not a strong one. Since Communism ended, the government has given up businesses to private owners, and a lot of the country’s businesses are not functioning due to lack of funds. Russia gets money from selling oil. Their human capital is low due to lack of proper education in schools and colleges.

Specialization

The act of concentrating on a limited number of goods and activities to trade

Helps people and companies use resources more efficiently

Allows for increased production and consumption of goods and services

Types of Trade Barriers

Tariffs Taxes on imported goods Makes consumers pay a higher price for the

item Increase in demand

Quotas Restrictions on the amount of a good that can

be imported into a country Cause shortages that raise prices

Embargos Forbids or disallows trade with other countries

Currency Exchange in Europe

Currency is the type of money used to exchange or purchase goods

The system of exchanging money internationally is called foreign exchange

Most countries in Europe use euros, which allows for easy exchange of goods in almost all countries in Europe

Capital and Human Capital vs. GDP

Human Capital The knowledge and

skills that allow for people to make goods and services for society

Factors▪ Training and education

Capital Things that are used to

make other goods Factors▪ Factories, technology and

machines

Gross Domestic Product (GDP) The total market value

of the goods and services produced by a country’s economy during a specific period of time

Used by economists to determine how healthy or unhealthy a country is

Human Capital, Capital and GDP

The relationship between human capital and GDP is if a country has good source of human capital, the GDP tends to be higher

The relationship between capital and GDP is the more capital in a country, the healthier the country is in the long term

Natural Resources in Europe

Natural resources that drive Europe’s economy include Oil Coal Natural Gas Iron Forestry Rivers

Entrepreneurship

An entrepreneur is someone who has an idea for a good or service and takes risks to produce the good or service

Entrepreneurs know of the risks before the product is produced

Entrepreneurs help the economy to grow based on borrowing funds, use capital and human capital and natural resources

Europe as a whole does not have a lot of entrepreneurship compared to other continents