Unit 3 - Types of Economic Systems and Their Characteristics

What is an economic system?

An economic system refers to the rules and regulations related to the production and consumption of goods and services in a country.

What are the three main types of economic systems?

Market economies, centrally planned economies, and mixed economies.

What characterizes a market economy?

Businesses are owned by individuals and private corporations, competition is encouraged, and the government has little direct involvement.

What is a centrally planned economy?

An economy where the government controls the quantity and prices of goods and services, and most or all businesses are government-owned.

What is a mixed economy?

An economy that combines government involvement in business with private ownership of businesses.

Give an example of a mixed economy.

The USA is a mixed economy with less government involvement compared to Canada.

What is privatization?

Privatization refers to when government-owned corporations are sold to the private sector.

What are crown corporations?

Corporations owned by the federal government or one of the provincial or territorial governments.

What is the significance of venture capital?

Venture capital enables innovation by funding bold, world-changing ideas and helps startups grow faster.

Who is Vinod Khosla?

A venture capitalist and founder of Khosla Ventures, known for funding innovative ideas.

What is the role of venture capitalists in startups?

They provide money, mentorship, connections, and help with strategy, hiring, and scaling.

Why is venture capital less common globally?

Due to less tolerance for risk, conservative financial systems, and legal/cultural barriers.

What percentage of VC-funded companies typically lose money?

65% of VC-funded companies lost money.

What is the typical VC funding cycle duration?

The typical VC funding cycle lasts about 10 years.

What key technologies has government research contributed to?

The Internet, GPS, and microchips.

What enables VC-backed companies to outperform standalone companies?

Access to money, mentorship, connections, and the ability to take large atypical risks.

What is the relationship between venture capital and market economies?

Venture capital is most connected to market economies within a mixed system.

What is the impact of venture capital on job creation?

VC-backed companies generate more jobs and contribute to technological advancements.

What is the philosophy of Vinod Khosla regarding investments?

He believes strongly in taking big risks and funding bold, world-changing ideas.

What is a characteristic of centrally planned economies post-1990?

Most former centrally planned economies privatized most of their industries after the collapse of communism.

What is the importance of Pat Brown's story in the context of venture capital?

It demonstrates how venture capital can turn a scientific idea into a successful company.

What is one reason why VC is powerful in the US?

VC drives innovation and economic growth.

What are some examples of companies that have used venture capital?

Apple, Intel, Google, Amazon, Facebook, Uber, Airbnb, Impossible Foods.

What do mixed economies typically involve?

A combination of private ownership and government involvement in business.

What is a key idea about startups and their growth?

Startups grow slowly and need a long runway to succeed.

What is one of the main characteristics of a centrally planned economy?

The government controls the prices of goods and services.

What does VC depend on?

Private investment choices

What are the key components for VC to work effectively?

Competition, innovation, and risk-taking

How does government support contribute to the economy?

It makes the economy a mixed economy overall.

What is a market economy?

An economic system characterized by individual incentives and efficient resource use.

What are the benefits of a market economy?

Individual incentive, efficient use of resources, and new products.

What are the disadvantages of a market economy?

Increasing economic inequality, lack of consumer education, and unhealthy products.

What are the benefits of a centrally planned economy?

Minimum standard of living, free health and education, low prices, and long-term stability.

What are the disadvantages of a centrally planned economy?

Little motivation to work hard, higher taxation, and potential for corruption.

What are the benefits of a mixed economy?

Consumer protection and a balance between individual incentives and government support.

What are the disadvantages of a mixed economy?

Government intervention may stifle growth and lead to high taxation.

What is a command economy?

An economic system where the government controls all aspects of the economy.

How do command economies stabilize their economies?

By controlling taxes, spending, and prices.

Which economic system is least likely to use fiscal policy?

Market economy.

Which economic system is most likely to use fiscal policy?

Mixed economy.

What is a progressive tax system?

A tax system designed to reduce inequality, often used in mixed economies.

What typically happens during a recession?

High unemployment, lower incomes, and less spending.

What fiscal policy can help fix a recession?

Expansionary fiscal policy: increase government spending and decrease taxes.

What are automatic stabilizers?

Policies that automatically adjust government spending or taxes without new action.

What is discretionary policy?

Government action to change spending or taxes to influence the economy.

What are the benefits of a budget surplus?

Pays down debt and provides room to respond to future recessions.

What are the benefits of a budget deficit?

Stimulates a weak economy and can fund productive investments.

What role does the Central Bank play in monetary policy?

It makes decisions that affect money supply, interest rates, and inflation.

What are the characteristics of a democracy?

Rule of law, free speech, equal rights, fair elections, free press, and freedom of religion.

What are the characteristics of an autocracy?

Rule by one leader or small group, heavy military presence, and limited dissent.

What is the purpose of fiscal policy?

To influence the economy through government spending and taxation.

What is political risk?

The risk that a business' investment suffers losses due to political decisions or instability in a country.

What are general political risks companies face?

Compromised relationships (e.g., USA tariffs), terrorism, and frequent changes in leadership.

What is expropriation in ownership risks?

When the government seizes property or forces a business to sell without compensation.

What are transfer risks?

The risk that a company will be prevented from exchanging currency or moving funds out of the country.

What is an example of operations risk?

Changing government policy that affects operations, such as taxes or import/export restrictions.

What is a trade agreement?

A deal between countries that sets rules for how they trade, making trade easier and less restrictive.

What are Free Trade Agreements (FTAs)?

Agreements that remove or reduce trade barriers like tariffs and quotas.

What was NAFTA?

A 1994 agreement between Canada, the US, and Mexico that reduced or removed many trade barriers.

What is the USMCA?

An updated version of NAFTA that replaced it with new rules between Canada, the US, and Mexico.

What is the European Union (EU)?

A group of 27 countries that shares a common currency (Euro) and cooperates economically and politically.

What are the goals of the EU?

To remove trade barriers, allow free movement of goods and people, reduce inequality, and share common policies.

What is the purpose of the World Trade Organization (WTO)?

To help countries follow fair trade rules and solve trade disputes.

What are the main goals of the WTO?

Lower tariffs, remove quotas, protect intellectual property, and help poorer countries develop trade policies.

What does the World Bank do?

Helps less developed countries grow their economies through low-interest loans and encouraging foreign investment.

What are the main functions of the IMF?

Monitors government spending, recommends policies to fix financial problems, and provides low-interest loans.

What did Bill Clinton promise NAFTA would achieve?

Remove trade barriers, create the largest trade zone, and create new US jobs.

What concerns did interest groups have about NAFTA?

Workers and unions feared job loss to Mexico due to cheaper labor.

How does USMCA expect to increase US manufacturing?

By requiring more car parts to be made in North America and higher wages for workers.

What is the significance of stronger Mexican unions for Canada and the US?

They can lead to rising Mexican wages, making labor less cheap and protecting jobs in Canada and the US.

Will USMCA bring manufacturing jobs back to Canada and the US?

No, due to global supply chains, automation, and high costs of moving factories back.

How will USMCA affect car prices?

Car prices will increase due to higher production costs and wage requirements.

What was the purpose of the ECSC?

To keep peace in Europe after WWII by controlling coal and steel production.

What are potential roadblocks for Ukraine to join the EU?

High financial costs, agricultural conflicts, and a long political process.

What is the impact of USMCA on Canadian dairy farmers?

They face more competition and potential loss of market share due to US access to the Canadian dairy market.

What is the sunset provision in USMCA?

USMCA expires after 16 years unless renewed, requiring a 6-year review.

What are the implications of extended biologic drug patents under USMCA?

Longer monopolies for pharmaceutical companies, leading to higher drug costs for consumers.

What is the impact of the North American content requirement in USMCA?

It increases from 62.7% to 75%, protecting jobs in Canadian and US auto industries.