Chapter 11: Differences in Economic Systems Around the Globe and Their Impacts on International Trade
Chapter 11 Summary
LO 11.1 National Differences in Economic Systems
- Economic systems fall into two categories: a free market economy (or capitalism) and a command economy (or socialism).
- In a free market, factors of production are privately owned, and the interaction of supply and demand determines the production of goods and services.
- In command economies, the state makes decisions about production and resource allocation based on government planning.
- Today, all countries are mixed economies, with some sectors that are state-owned and some left to private ownership.
LO 11.2 Risks Associated with Different Economic Systems
- Economic risk is the possibility that changes in macroeconomic factors will negatively impact a company or an investment.
- Macroeconomic factors are gross domestic product, inflation, unemployment, and policy interest rates.
- Other risk factors associated with different economic systems are government exchange controls, local content laws, and tariffs on foreign goods.
LO 11.3 Strategies to Mitigate Economic Risks
- Strategies to mitigate economic risks include
- foreign financial involvement and building relationships.
- developing plans for a variety of scenarios.
- sharing the risk and acquiring insurance.
