Economics, International Business, and the Global Economy, Part 3

Question 1: Identify some examples of where each of the four types of economic systems can be found.

Answer 1: Traditional economies are usually used in less-developed nations, such as the poorer nations of Asia, Africa, and South America. Examples include Haiti, Rwanda, and certain African and South American tribes. Market economies are usually found in capitalist and free enterprise societies such as Japan, the United Kingdom, and the United States. Command economies are usually found in communist and socialist societies such as North Korea, the former Soviet Union, and Cuba. Mixed economies are somewhat more difficult to identify because even though certain countries are often classified as using market economies such as the United States or command economies such as China, most nations actually use a combination of the two. For example, even though the United States primarily uses a market economic system, it could be classified as using a mixed economic system because certain utilities and industries are owned or subsidized by the government.

Question 2: Explain some of the effects that a traditional economic system and a market economic system have on international trade.

Answer 2: Each of the four types of economic systems—traditional, market, command, and mixed—function in a different way, and the type of economic system that a nation uses can greatly influence the ease of trading in a particular country. Traditional economies are usually poorer, do not readily accept change, and usually do not encourage free trade, so it is more difficult for international businesses to conduct trade in these nations. Even if a business is able to trade in a nation with a traditional economy, it is unlikely that the business will be able to find enough consumers with the resources available to purchase its products and services. Market economies, on the other hand, usually have more resources, are reasonably more flexible to change, and heavily encourage free trade, so it is significantly easier for international businesses to trade in market economies. As a result, the primary problem that arises from trading in a market economy is that each business has significantly more competition.

Question 3: Explain some of the effects that a command economic system and a mixed economic system has on international trade have on international trade

Answer 3: Command and mixed economies, just as traditional and market economies, can have profound effects on the ease with which a business conducts trade within the country. Command economies may possess the resources necessary to conduct trade, but by their very nature, forbid free trade. Also, they are often resistant to change, so it may be difficult or even impossible for outside businesses to conduct trade with consumers within a command economy. Mixed economies allow for a reasonable amount of flexibility to change because they consist of a combination of both a command and market economic system. Each nation with a mixed economy offers a differing level of free trade, depending on the laws and regulations set by the government. Most of the world’s larger nations use a mixed economic system and, therefore, businesses dealing internationally need to have at least a basic understanding of the laws and regulations of each country to continue trading.

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