Economic Systems Ch. 23 Capitalism Socialism Communism
Economic Systems Main questions for Economics - what, how, who ALSO - who decides what, how are goods distributed, what will be taxed, what social services if any
Capitalism “Wealth of Nations” - Adam Smith - government should stay out of economic decisions. - classic capitalist economics - the free hand of competition will improve the lot of everyone.
Capitalism - government should promote and protect free play and supply and demand.
Capitalism Free Enterprise System (Free Market) Factors of Production are owned by private individuals or corporations. Factors of Production 1. 2. 3. 4.
Capitalism Entrepreneur combine factors of production to start new business and fuel economic growth - Not Easy - important to our economy
Capitalism 4 basic elements to Free Enterprise Private ownership - factors (resources) are owned by people or companies Land,labor,capital is yours - you do with it what you want. (property rights)
Capitalism Individual Initiative - private persons control the production and distribution of good & services. Profit - business leaders are willing to take risks. You get benefit. Competition - keeps things fair. Keeps prices low and quality high
Capitalism Supply & Demand have big impact on prices. - business - supply side of market - consumer - demand side of market - supply is up prices drop - supply is down prices rise
Capitalsim - Demand is down prices drop - Demand is up prices rise - Supply & Demand must work together to find a balance in market. (equilibrium)
Capitalism Monopoly (bad for competition) one source produces product or service Trust - several companies in same industry working together. -oligopoly competition -monopolistic competition
Capitalism Mixed Economy - many economies around the world are mixed, including U.S. - government participates in a free enterprise. (Mostly regulation)
Capitalism Business organizations * Sole Proprietorship - owned by a single person (very small) * Partnerships - two or more people * Corporatioins - Multiple shareholders (limited liability) (taxes)
Socialism equal distribution of wealth Centrally planned economy Industrial Revolution - rapid industrial growth - agriculture to industrial I.R. Not good for everyone
Socialism Karl Marx - modern day socialism - communism “Communist Manifesto” - concepts on Communism “Das Kapital” - theories on Capitalism
Socialism Marx - “All of mankind is a class struggle” Dominating class - Bourgeoisie Dominated class - Proletariat Marx - “Proletariat will revolt and bring down Bourgeoisie”
Socialism -very violent and bloody revolution _________________________________ Socialistic tendencies Nationalization - placing private industries under govt control.
Socialism - dominant industries can be nationalized. Public Welfare - try to equally distribute necessities and services. (welfare states) - health care, retirement, college education, disability
Socialism Taxation - taxes are high in a socialist economy needed to provide welfare services needed to equally distribute wealth - Centrally planned economy (command)
Socialism - govt can direct economy to develop it and to help meet targets that are set. - some countries have more of this than others - many countries are considered mixed
Socialism Developing Countries - no large traditional industry - large industry is owned by foreign interests - Nationalization helps - able to develop key industries - Authoritarian rule is prevelent
Socialism Pros & Cons too much govt - too much red tape Not as much individual initiative - Not as much freedom in economic decisions Economies are too complex to be left to govt planners Not as much incentive to work hard
Socialism evens out inequalities - socialism has more morals Much more fair for everyone More workers rights in the work place
Communism Referred to as a type of economy, government, and way of life Once very popular Karl Marx - developed Communism - classless society - collective ownership of means of production
Communism - free enterprise vs. labor theory - value of something = amount of labor put into it - who should get most of the profits -The State -govt and institutions gave capitalists power over working class
Communism - Religion - “opiate of the people” Marx wanted a free classless society -citizens own everything together (collective) -no poor working conditions -no unemployment -abundant goods would be based on need
Communism -Command economy - (central) Communist party makes all govt, social & economic decisions -Marx - Revolution would occur in most industrialized countries first. *happened in Russia first
Communism Five year plan - staple of Communism - shows how leaders want economy developed over next 5 years. -sets goals, what industry will take precedence, what to produce, sets prices, decides how goods will be distributed.
Communism Collectivization - merger of private farms into one large govt owned farm. State ownership - industry and factors of production owned by govt. - not as intense in some countries today * Many countries that are communistic are beginning to allow some free market play