ECONOMIC SYSTEMS: LATIN AMERICA
For a country to have a successful economy, it must be able to adopt a variety of economic models and policies. There are many different types and models of economies. A successful model must be able to answer these three basic questions: what should the nation produce, how should the nation produce it, and who should it be produced for. There are three basic economic models: traditional, command, and market. Most countries practice a mixed economic model, which combines these in different ways.
First, a traditional economy focuses on tradition and typically works best in smaller economies. A traditional economy is a simple economy based on tradition. Typically, traditional economies do not grow to a large scale. The decisions of what to produce and how to produce it are based on tradition. The roles within a traditional economy are generally inherited or generational. For example, a traditional economy depends largely on agriculture, hunting, gathering, or some combination. Another characteristic of a traditional economy is bartering. Bartering is essentially the same as trading. A traditional economy decides what to produce and how to produce it based on tradition and need. Subsistence is also a characteristic of a traditional economy. Subsistence is the ability to produce only what is needed for survival. This type of economy is often seen in countries that are still developing. Most of these traditional economies are practiced in undeveloped countries in Africa, South America, and the Middle East.
Second, a command economy is an economy where the government makes all of the decisions. This economy is typically led by a dictator. The government owns all of the major industries. Through the government owning the industries, the government also controls the quantity, or number, of goods produced. The government also controls the prices of these goods and services. Additionally, the government can control the workers’ wages, or how much the worker is paid. Plus, the government can assign jobs and set production quotas. A production quota is a goal of a certain amount of a good or service to be produced within a certain time frame. In a command economy, the government decides what to produce, how to produce it, and for whom to produce. A negative aspect of a command economy is that it restricts and limits entrepreneurship and free market enterprise. Entrepreneurship is a private citizen starting and operating a business.
Finally, a market economy allows businesses to make decisions based on the demands of the consumer. In a market economy, the supply and demand controls the economy with little government involvement. This lack of government control is referred to as “laissez-faire”. “Laissez-faire” is a French phrase that translates to “let them do” in English. This type of economy encourages entrepreneurship and free enterprise. One negative aspect of a market economy is that it can be unstable. The businesses must be able to predict consumer demands in order to provide economic stability.
Most of the world’s nations practice a mixed economy. A mixed economy combines these three economic models in different ways. In a mixed economy, what to produce, how to produce it, and for whom to produce is answered by a combination of government and supply-and-demand. Although most countries practice a mixed economic model, they all have different levels of government involvement. This means that some mixed economies are more command-leaning, while others are more market-leaning. Cuba, Brazil, and Mexico all have mixed economies. They use different combinations of government involvement, but are all mixed economies.
