Chapter 18 The Spectrum of Economic Systems

Capitalism The means of production are privately owned Supply and demand determine prices Businesses are free to direct resources into activities that promise the greatest profits

Advantages of Capitalism Efficiency Freedom Highly decentralized High degree of consumer satisfaction Flexibility to accommodate change Wealth accumulation

Disadvantages of Capitalism Does not always satisfy everyone’s needs Ignores the production of many public goods Produces for only those who have a demand (ignores poor people, unemployed and elderly people)

Socialism An economic system in which government owns and runs some of the basic productive resources in order to distribute output in ways deemed to be in the best interest of society Democracies

Advantages of Socialism Addresses the FOR WHOM question directly Those who are not fortunate or productive enough to earn a competitive income still share in the benefits of society

Disadvantages of Socialism Less efficient than capitalism Taxes are generally higher

Communism Political and economic framework where all property is collectively owned, labor is organized for the common advantage of the community, and everyone consumes according to their needs.

Advantages of Communism Equality Health care, transportation, military and education are provided at little or no cost Lack of uncertainty concerning careers and job security Allows the economy to shift directions in a relatively short period of time

Disadvantages of Communism Individual freedom is lost! Lacks effective incentives that encourage people to work hard Fails to meet the needs and wants of consumers Inefficiency of centralized planning Lack the flexibility to deal with day-to-day changes