European Economies-2-1-1

Economic Systems Overview

• Every country must answer three economic questions:

  1. What goods/services will be produced?

  2. How will goods/services be produced?

  3. Who will consume the goods/services?

• The answers to these questions determine the economic system of the country (Traditional, Command, or Market).

Germany's Economic System

• Type: Mixed Economic System

• Characteristics:

  • After reunification in 1990, East Germany transitioned from a command economy towards a market system.

  • The absorption of East Germany’s command system posed challenges to West Germany’s economy.

  • Citizens enjoy a high level of economic freedom with ownership of land, resources, and factories.

• Government Role:

  • Collects relatively high taxes to support services for poorer citizens.

  • Regulates certain industries (telecommunications, agriculture, energy) and sets prices on specific goods/services.

Traditional Economic System

• Economic decisions based on customs and beliefs, where:

  • People produce goods/services as their ancestors did.

  • Exchange occurs through bartering (trading without money).

• Examples: Small tribes in northern Russia and other regions still practice traditional economies.

Command Economic System

• Government controls all economic decisions:

  • Regulates prices, wages, and production choices.

  • No true command economies exist today, though countries like North Korea and Cuba closely follow this system.

Market Economic System

• Economic decisions are driven by supply and demand.

• Government has minimal to no control; private citizens dictate economy.

• Notable Features:

  • True Free Market: No government intervention; however, this can be risky due to lack of regulations ensuring safety and fairness.

  • Almost no countries maintain a pure market economy.

Mixed Economic System

• Definition: Most countries have mixed economies combining characteristics of both market and command systems.

• Examples:

  • Democratic nations exhibit traits of both economic models.

• European Context:

  • Many European countries lean more towards a market economy, indicating high levels of economic freedom.

Economic System Comparisons

• United Kingdom:

  • Mixed system, approximately 79% free and 11% command.

  • Strong industrial power; recent privatization of state-run companies enhancing market competition.

• Germany:

  • Approximately 73% free, 27% command.

  • Facing economic impacts following reunification but maintains a robust market continuity.

• Russia:

  • Mixed system, about 59% free and 41% command.

  • Transitioning from command economy post-Soviet Union still faces several economic challenges.

Economic Continuum and Freedom

• Economic systems range from pure command to pure market economies.

• Countries may predominantly align with one system while incorporating elements of the other.

• Individual countries' placement on this continuum depends on the extent of market decision-making versus government intervention.