It makes them sound alike even identical when they

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Unformatted text preview: xed economies. However, to call them both mixed economies could be misleading. It makes them sound alike (even identical) when they are not. The United States has much more free enterprise than China, and China has much more som than the United States; the economies of these two nations are different. It is clearer to refer to the United States as a free enterprise nation and to China as principally a sot nation, while noting some sot practices occur in the United States and some free enterprise practices take place in China. Each year the Wall Street Journal and the Heritage Foundation rank countries according to how much economic freedom and free enterprise exist in the country. In 2005, they scored 155 countries on a scale of 1 to 5. The closer a country’s index of economic freedom number is to 1, the more economic freedom and free enterprise in the country; the closer a country’s index of economic freedom number is to 5, the less economic freedom in the country. Keep in mind that different organizations can sometimes rank countries differently as to how much economic freedom exists in the country. We show the rankings and index numbers for selective countries in Exhibit 2-1. (Hong Kong had the most economic freedom and North Korea the least.) Economic Systems: Past, Present, and Future Before economies were free enterprise or sot, many were traditional economies. A traditional economy is an economic system in which the answers to the three economic questions are based on customs, skills, and cultural beliefs. In a traditional economy, these customs, skills, and beliefs are passed on from one generation to the next. An example of a tra- EXHIBIT 2-1 Index of Economic Freedom Scores Rank Country 1 5 10 12 16 26 39 44 45 63 71 90 103 112 118 124 137 149 155 Hong Kong Ireland Australia United States Canada Italy Japan France South Korea Mexico Thailand Brazil Egypt China India Russia Vietnam Cuba North Korea Index of Economic Freedom Score 1.35 1.70 1.79 1.85 1.91 2.28 2.46 2.63 2.64 2.89 2.98 3.25 3.38 3.46 3.53 3.56 3.83 4.29 5.00 Source: 2005 Index of Economic Freedom, a joint publication of the Wall Street Journal and Heritage Foundation. ditional economy is the old feudal system in Western Europe. Under the feudal system, all land was owned by a king. The king granted land to nobles, who in turn granted small plots of land to peasants to farm. The peasants kept part of what they produced; the remainder went to the nobles and, ultimately, to the king. Few traditional economies exist today. Most economies today are mixed economies. Of course, the “mixture” of free enterprise and som often differs between nations’ economies. What does the future hold? Will most economies of the future be mixed economies (as they are today)? More importantly, will the mix between free enterprise and som in the future be the same as the mix that exists today? For instance, if we considered a representative mixed economy today, and noted that it is 65 percent free enterprise and 35 percent sociali...
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