ECONOMICS IN LATIN AMERICA

SS6E1 The student will analyze different economic systems. SS6E2The student will give examples of how voluntary trade benefits buyers and sellers in Latin America and the Caribbean

SS6E3 The student will describe the factors that influence economic growth and examine their presence or absence in Latin America.

ELEMENTS

Compare how traditional, command, and market economies answer the economic questions of (1) what to produce, (2) how to produce, and (3) for whom to produce.

Explain how most countries have a mixed economy located on a continuum between pure market and pure command.

Compare and contrast the economic systems found in Brazil and Cuba Explain how specialization encourages trade between countries. Compare and contrast different types of trade barriers, such as tariffs,

quotas, and embargos. Explain the functions of the North American Free Trade Agreement

(NAFTA) Explain why international trade requires a system for exchanging

currencies between nations. Explain the relationship between investment in human capital (education

and training) and gross domestic product (GDP). Explain the relationship between investment in capital (factories,

machinery, and technology) and gross domestic product (GDP). Describe the role of natural resources in a country’s economy Describe the role of entrepreneurship

ESSENTIAL QUESTIONS

How do governments impose trade barriers? How do the trade agreements made between countries in

Latin America and the Caribbean (i.e. NAFTA) overcome trade barriers and

encourage voluntary trade in the region? How do trade barriers (tariffs, quotas, and embargoes)

prevent international trade from occurring between countries?

Why is it necessary to exchange currencies for nations to trade?

Why are the benefits of voluntary trade important for buyers and sellers?

What are the factors that promote economic growth in countries?

How are these factors present or absent in the countries of Latin America and the Caribbean? (Cuba and Brazil)

How does having or not having these factors of production affect the countries of Latin America and the Caribbean? (Cuba and Brazil)

What is the role of entrepreneurship in Latin America?

What is an Economic System?

Every society, whether a country, state, city, town, has an economic system

An economic system is how a society organizes the production, consumption and distribution of goods and services

Systems of Economy

There are three main types of economic systems Traditional

Found mostly in societies that are based on farming People produce enough goods to survive

▪ Either by farming, gathering or hunting Make their own clothes and tools Anything extra is usually traded

Command Government controls what is produced, how things are produced Government has all the resources and dictates what is to be made and

who gets the product▪ Decisions made on wealth, class status or by position in a waiting line

Market Based on what the consumers of the country want to buy and sell Supply and demand determines what is produced and how it is produced People may own their own businesses Who gets a product determines how much they can afford to buy it

Countries with Different Systems

NORTH KOREA

PAKISTAN

UNITED STATES OF AMERICA

The Idea of Mixed Economy Most countries in the

world have a mixed economy Most are in between

command and market economies

Because of growing populations, citizens acquiring more rights, the addition of resources and government changes, countries have moved towards mixed economies

Examples of countries with mixed economies United States England France South Africa

Economic System of Cuba

Cuba has a command economy, and the government owns all resources, property and also decides who gets the products and how products are made. Cuba’s overall economy has decreased due to the Soviet Union’s collapse and the U.S. blockade. People in Cuba are not allowed to own businesses or make products without permission

Economic System of Brazil

Brazil has a mixed market economy, and is the strongest economy of all the countries in South America. Brazil makes money through agriculture, mining, manufacturing and services. The government controls the post office and health care. People in Brazil are free to own businesses and to buy what they please.

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Specialization

The act of concentrating on a limited number of goods and activities to trade

Helps people and companies use resources more efficiently

Allows for increased production and consumption of goods and services

Types of Trade Barriers

Tariffs Taxes on imported goods Makes consumers pay a higher price for the

item Increase in demand

Quotas Restrictions on the amount of a good that can

be imported into a country Cause shortages that raise prices

Embargos Forbids or disallows trade with other countries

Currency Exchange in Latin America

Currency is the type of money used to exchange or purchase goods

Types of money in Latin America and the Caribbean:

Mexico – Peso Brazil – Real Venezuela –

Bolivar Haiti – Gourde Jamaica –

Jamaican Dollar

What is NAFTA? The North American Free Trade Agreement,

or NAFTA, is a trade agreement signed by Mexico, the U.S. and Canada in 1994

NAFTA allowed for no trade barriers between the three countries so trade can move freely

The functions of NAFTA are: Eliminate Tariffs Remove Quotas Remove barricades Establish strict regulations in industries Improve working conditions

Capital and Human Capital vs. GDP

Human Capital The knowledge and

skills that allow for people to make goods and services for society

Factors▪ Training and education

Capital Things that are used to

make other goods Factors▪ Factories, technology and

machines

Gross Domestic Product (GDP) The total market value

of the goods and services produced by a country’s economy during a specific period of time

Used by economists to determine how healthy or unhealthy a country is

Human Capital, Capital and GDP

The relationship between human capital and GDP is if a country has good source of human capital, the GDP tends to be higher

The relationship between capital and GDP is the more capital in a country, the healthier the country is in the long term

Natural Resources in Latin America

Natural resources that drive Latin America’s economy include Iron ore Lumber Oil Rivers

Entrepreneurship

An entrepreneur is someone who has an idea for a good or service and takes risks to produce the good or service

Entrepreneurs know of the risks before the product is produced

Entrepreneurs help the economy to grow based on borrowing funds, use capital and human capital and natural resources

Latin America’s entrepreneurship rate is growing but it is hard to start businesses