Different economic systems

All societies are faced with the problem of scarcity. They differ considerably, however, in the way they tackle the problem. One important difference is in the degree of government control of the economy.

At the one extreme lies the completely planned or command economy, where all economic decisions are taken by the government.

At the other extreme lies the completely free-market economy. In this type of economy there is no government intervention at all. All decisions are taken by individuals and firms. The pattern of production and consumption that results depends on interactions of all these individual demand and supply decisions.

In practice all economies are the mixture of the two. It’s so called mixed economy. It is therefore the degree of government intervention that distinguishes different economic systems. The mixture of government and the market can be shown in figure 1. It shows where particular economies of the real world lie along the line between the two extremes.

Beginning: 21^st century

Figure 1 - Classifying economic systems

The problem with this type of classification is that it is “unidimensional” and thus rather simplistic. Countries also differ in the type of government intervention as well as the level. For example government intervenes through planning, through nationalization, through regulation, through taxes and subsidies, through partnership schemes with private industry, and so on. Thus, two countries could be in the similar position along the line but have types of government intervention that are quite different. In one, the intervention could be through the public ownership of industries; in the other, it could be through rules and regulations governing the behaviour of private industries.

There has been a general movement to the right along the line since the mid of 1970’s. In Eastern European economies this has been the result of the abandonment of central planning and the adoption of a large measure of private enterprises, especially since the late 1980’s. In western economies it has been a result of deregulation of private industry and privatization, i.e. the selling the nationalized industries to the private sector.

COMPREHENSION CHECK

Exercise 1. Are these statements true or false?

1. Great difference between societies is in the degree of control of a separate person in economy.

2. Very few societies face the problem of scarcity.

3. In planned or command economy almost all decisions are taken by government.

4. There is no government intervention in free-market economy.

5. Under free-market economy all decisions are taken by government.

6. Pure free-market economy as well as command economy doesn’t exist, in practice they are mixture of the two.

7. Eastern European countries abandoned central planning in late eighties.

8. At the same time nationalized industries in the western Europe were sold to private sector.

Exercise 2. Answer the following questions.

1. What is scarcity?

2. Do all societies face with this problem?

3. What types of economy do you know?

What is the difference between them?

4. Do pure command or free-market economies exist?

What type of economy do the most of societies have?

5. What are the tendencies in economic development in late nineties and now?

Exercise 3. Complete the extract using the appropriate words and word combinations from the text.

The ¹… of different countries vary according to the extent to which they rely on the market or the government. At the one extreme, in a ²…, the state makes all the ³… decisions. ⁴… is the free-market economy. In this economy ⁵… are made by the interaction of demand and supply. A ⁶…, however, is likely to be inefficient. A ⁷… functions automatically and if there is plenty of competition between producers this can help to protect ⁸… interests. In practice all economies are some ⁹… of the market and government ¹⁰…. It is the degree and form of ¹¹… that distinguishes one type of economy from another.

GRAMMAR Articles and their Use

Articles

A/an are used only in singular:

a) when something is mentioned for the first time.

He was asked to make a balance.

b) with general statements.

A financier is a person responsible for financial state of a firm.

c) аs a descriptive label.

Mr. Smith is an accountant.

d) with words “what” and “such”.

What an interesting story!

What a surprise!

That book-keeper is such a skilled specialist!

The is used:

a) with nationality adjectives.

The British are considered to be good bankers.

b) with collective nouns or plural countable.

This new increase in underground fares won’t please the public.

c) when we know the subject or person.

The residence was built long long ago, but still was very impressive.

d) with the following words:

the beginning, the middle, the end, the first, the last, the next,

the following day, the present, the future.

In the past people had fewer demands.

e) with the historical events, ships, political parties, newspapers, magazines, hotels, titles of books.

The Great Patriotic war, the Labour party, The Economist etc.

We like to read The Times in the evenings.

f) with superlatives.

The best friend I had ever had turned out to be the commercial manager of Daewoo.

g) with musical instruments.

He is good at everything, not only in economics, he plays the piano perfectly well.

The zero article is used:

a) with plural countable nouns.

Books were everywhere: in the bookcases, on the floor, on the chairs, on the table.

b) with uncountable nouns.

Oil is not as expensive this year as it was said.

c) with proper nouns.

Sam is our director.

TRAIN AND CHECK YOURSELF

1. Make up sentences.

1. Economies, a, and, the, two, of, in, are, free-market, all, practice, mixture, command.

2. Well, in, of, the, as, intervention, countries, also, type, as, differ, level, the, government.

3. Are, with, all, the, of, societies, problem, faced, scarcity.

4. Firms, decisions, individuals, all, and, taken, by, are.

5. Planning, taxes, subsidies, government, through, regulation, nationalization, intervenes.

6. To, to, what, and, consume, supply, decide, goods, labour, how, other, and, households, much, factors.

7. Employ, produce, and, decide, what, what, goods, to, firms, to, factors.

2. Insert the right article: a, an, the, zero article. Explain its use.

…¹ input-output analysis involves dividing …² economy into …³ sectors where …⁴ each sector is …⁵ user of …⁶ inputs from other sectors and …⁷ supplier of outputs to …⁸ other sector. …⁹ technique examines how …¹⁰ these inputs and outputs can be matched to …¹¹ total resources available in …¹² economy. …¹³ input-output analysis shows for …¹⁴ each …¹⁵ industry …¹⁶ sources of all …¹⁷ its inputs and …¹⁸ destination of all …¹⁹ its output. By …²⁰ its use …²¹ state attempts to match up …²² inputs and …²³ outputs of …²⁴ each industry so that …²⁵ planned demand for …²⁶ each industry’s product is equal to ...²⁷ its planned supply.

III. Make up as many questions to the following sentences as you can.

1. Actually there are three economic systems: command, free-market and mixed.

2. Command economy is the economy where all economic decisions are taken by central government.

3. Free-market economy is the economy where all economic decisions are taken by private households and firms.

4. Mixed economy is the economy where all economic decisions are taken partly by the government and partly through the market.

5. Almost all countries have mixed economy.

6. In free-market economy markets have the priority in deciding what, how and for whom to produce.

7. There are a lot of advantages in free-market economy.

8. There are a lot of disadvantages in command economy.

9. Population and firms have a lot of difficulties in command economy.

IV. Insert the proper pronoun.

1. A woman organizes a firm. … wants to supply detergents. … decision is up-to-date, … corresponds to the market demand, but … needs …’s help.

2. A problem undergoes … difficulties. … has a shortage of raw materials. … decision to meet with the supplier is quite right. The producer wants … to check all the dispatches … .

3. I can’t say what …’ll do later. But now, … think, … demand is justified and they’ll do everything to fulfill … demand. … ‘ll do … that.

4. Prices increase from year to year. … go up quicker than … salaries. … increase makes … uncertain, nervous and irritable.

V. Choose the correct form.

1. Consumers have/has better choice in free-market economy.

2. There be/is so called input-output analysis which helps to match the planned demand with the planned supply.

3. Are/will be all decisions taken by households and firms under free-market economy or under command economy?

4. People have/has no right to make their own economic choices under command economy.

5. Economic system is/will be away of distributing society resources to satisfy its citizen’s needs.

6. Every nation in the world has/have a unique way of distributing resources.

7. All economic systems have/will have certain features in common.

8. Is/was social equality a major goal in a planned economy?

9. Are/were all factors of production in former Soviet Union under state control?

10. There was/will be less of a gap between rich and poor in a planned, command economy?