Chapter 2 Communism Socialism Capitalism Mixed Economic Systems
Economic System – way in which a nation uses its resources to satisfy its people’s needs and wants. All economics systems are faced with answering the same basic economic questions. What should be produced? How should it be produced? For whom should it be produced?
Traditional System – system where economic decisions are based on customs and beliefs that have been handed down from generation to generation.
Command System – system which the government controls the factors of production and makes all decisions about their use.
Market System – System in which individuals own the factors of production and make economic decisions through free interaction while looking out for their own and their families best interests.
Market System Why? What is a Market? Process of exchanging goods and services freely between buyers and sellers.
ADVANTAGESDISADVANTAGES Know what is expected of you Strong family and community ties Change is discouraged Production is inefficient Choices are rare Lower and more stable standard of living
Inuit of North America Mbuti of Democratic Republic of Congo Aborigines of Australia Why do you think that these people practice traditional economies? Lack on infastructure and transportation Little access to technology Limited human interaction outside of the tribe Poor formal education Don’t know much about life outside of the tribe
ADVANTAGESDISADVANTAGES People do not bear the burden of making economic decisions Government provided the needed resources for individuals Lack incentives for work and inventiveness Government sets salaries so people tend to not be motivated to work fast or hard. People have limited choices in their lives and with their money
ADVANTAGESDISADVANTAGES People have many freedoms Choose a career Spend money Own property Make profit Competition gives consumers many choices and lower prices Concern for those you young, sick, or old to work Survival for these people would be difficult without the government stepping in to assist in providing goods and services for these people
Mixed Economies – system that combines characteristics of more than one economic system. Most systems are mixed, but lean more toward one system than the other. What are some ways that the United States is a mixed economy? People are free to make many economic choices for themselves. (market) The government provides many free (taxpayer) services to individuals. Public education, health care, medicaid, medicare, social security, ect.
Economic system in which private individuals own the factors of production
Laissez-faire – “let the people do as they choose” Government regulation is limited Started with just defense and keeping the peace, now government regulates; quality of products, banking, working conditions, and the environmental impact. Freedom of Choice Buyers and sellers have the freedom to choose what to buy and produce Government may step in to regulate an industry to protect consumers.
Profit Incentive – desire to make money is what motivates people to produce and sell goods and services. Risk of failure The relationship between profits and losses leads the economy to become more efficient; drives changes Competition – rivalry among producers or sellers of similar goods and services to win more business. Few barriers to entry Leads to efficient use of resources Large number of sellers
Private Property – whatever is owned by individuals rather than the government. How does Capitalism drive new technology and resources?
What are some economic choices that you value as an America Teenager? Have a job and make money Purchase items that I want Freedom to choose by destiny How can we (Americans) change out standard of living? Standard of living – the material well being of an individual, group, or nation measured by how well their necessities and luxuries are satisfied.
System in which the government owns the major factors of production and attempts to manage output and distribution of goods and services.
Prices are set by the state, rather than by supply and demand. Movement of resources and labor is strictly controlled. Private property rights are limited and most factors of production are owned by the state. People can own tools used for their occupation Individual risk is not allowed. State takes all risk when deciding which companies should be formed. Citizens pay for unsuccessful risk taking The State answers the 3 basic economic questions What, How, and For Whom Taxation is used to redistribute income
Democratic Socialism – System that works within the constitutional framework of a nation to elect socialists to office; the government usually controls only some areas of the economy. Authoritarian Socialism – System that supports revolution as a means to overthrow capitalism and bring about socialist goals; the entire economy is controlled by a central government; also called communism.
Where did Socialism come from? Karl Marx He viewed history as a constant struggle between the capitalists (land owners) and proletariat (workers). He believed that the capitalists exploited the workers and took the profit that rightfully belonged to them. Marx also believed that Capitalism was doomed to fail. He predicted that capitalism would collapse and socialism would take its place. Then socialism would evolve into communism, where need for government would be little. Pure communism would form, where workers would contribute their full abilities to society and in return, take only what they needed from it.
- Idealized society in which no government is necessary - Authoritarian socialist system that supports revolution as a means to overthrow capitalism and bring about socialist goals.
What Marx believed communism to means was… A system in which the need for government was little, and that people worked for the good of the community and all that was needed was provided by the community for the use of the community. What communism is today… The opposite of what he wanted The most government intense economic system in which people have little or no say in government and very limited economic choices. They work for low wages and have few choices.
Kibbutz – Collective community in Israel where people share all resources as needed, and contribute all efforts to the good of the community. Clothes Food Shelter Help raise children and take care of elderly parents