Definition Means of production: the facilities and resources needed to make a product. Can include: machines tools buildings factories
Basic economic questions What to produce (make)? Who decides what to make? How to make products? Who do we make these products for? Who controls the means of production?
Traditional Economies What to produce? – They produce what they have always produced How to produce? – The way it has always been done For whom to produce the products? – Mostly subsistence economies They produce for themselves and their family
Market Economy or Capitalism Private ownership of the means of production (owned by the people) Consumers’ demand determines what is produced Examples include the United States, Israel, and Germany. There is free and fair competition: all companies have the same rules and the government does not interfere to help some companies over others.
Market Economy or Capitalism In order for there to be free and fair competition, there should not be any monopolies. – A monopoly is a company or group that has exclusive control over a commercial activity or product. – Monopolies limit free and fair competition because they are the only source of a product or service. Competition is necessary because it can keep prices down! Under a system of “pure” capitalism, government would take no part in the economy. In fact, in the United States and in other capitalist countries, governments do provide some goods and services such as – a postal service – highways – public education. – To protect free trade, the government also stops monopolies from forming.
Mixed Economy or Socialism The means of production are controlled by private individuals and the government. – The basic philosophy is that, for the good of a society the state should own and run the basic industries such as transportation, communications, banking, coal mining, health care, childcare and the steel industry. – Private enterprise (individuals) own and run most other businesses. Examples include the United Kingdom, Denmark, Sweden, France, Saudi Arabia, and Venezuela.
Mixed Economy or Socialism Socialists believe that wealth should be distributed more equally and that everyone is entitled to certain goods and services. The goal of socialism is to provide all citizens with basic economic needs, so socialist countries are sometimes known as “welfare states” because they provide many social services such as housing, health care, childcare, and pensions for retired workers. To pay for these services, taxes are usually high.
Command Economy or Communism A command economy is characterized by government (or central) control/ownership of the means of production. The government owns and controls all the major farms and factories, utilities, and stores. There are no purely communist economic systems today, but examples include North Korea and Cuba, Vietnam and China (to some extent). The former East Germany and the U.S.S.R. were also communist before they were disbanded. The government decides what products will be made, how much workers will be paid, and how much things will cost. The goal of a communist economic system is to eliminate social classes, replace competition with cooperation, and ultimately meet the economic needs of everyone in a society.