Q:

What are the differences between closed and open economies?

A:

Quick Answer

A closed economy is one in which the country trades only within its own borders. In an open economy, the country trades with other nations as well. Closed economies are much less common in modern society.

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Full Answer

Closed economies are a type of separatist way of operating the economy of a country. Countries with closed economies are entirely self-sufficient and neither export nor import goods. A closed economy is often underdeveloped since the country is unable to import products and must rely on the materials are found within its own borders. For example, if no oil or coal is found inside the borders, then the country has to look for alternative forms of energy.

Open economies are very common in the modern world due to globalization and international markets. In an open economy, the country willingly trades outside of its borders, including both imports and exports, which makes it an economic force on a global scale. Countries with slim natural resources can thrive with an open economy since they can simply trade for materials or resources that are not native to the land. Often, treaties and agreements are made between countries with open economies to ensure that trade is equal, fair and beneficial to both parties.

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