ECONOMIC SYSTEMS

Traditional Custom & tradition determine: What should be produced How it should be produced Who gets what is produced

Traditional (cont.) Subsistence agriculture – families grow just enough to feed themselves Still found in rural, non-industrial areas

Free Enterprise AKA capitalism or free market People are free to produce & buy what they want

Free Enterprise (cont.) The 3 economic ?’s are answered by the interplay between consumers & producers What should be produced How it should be produced Who gets what is produced

Supply & Demand PRICES are determined by supply & demand. When demand is high, price goes up. If supply is high, but demand is low, price goes down. If a producer charges too much for an item, other producers will sell the item at a lower price and outsell that producer.

Socialist Government owns & operates many basic industries Seen as the protector of the worker Private ownership encouraged

Communist Government owns & operates all businesses Create a national plan for the production & distribution of all goods and services Cooperation is supposed to replace competition No social classes

Advantages Disadvantages Traditional Custom and tradition are maintained. There isn’t competition, as things are owned by the family or village. Less of a demand on resources/no waste Individuals may not choose their position in society and occupation is determined at birth. New ideas are discouraged and change and growth are slow. Very little trade with outsiders Free Enterprise Choice in determining what to produce and how Right to own private property Little government interference Ability to make profits Risk of losing money in business Lots of competition Socialist Encourages private ownership Does not involve state planning Government protection of workers People’s basic needs (health care, transportation, education, housing) are met for free or at a very low cost Nation’s most important businesses are owned by the government (could also be seen as an advantage) Resources controlled by the government Communist No competition Based on cooperation, in which all workers should labor together and share equally Supposed to be beneficial for all Goal is to achieve a classless society All economic decisions are made by government All resources/industries controlled by the government No private property ownership; national ownership of all land, factories, farm, resources No incentives for workers Many former Communist countries abandoned communism as corruption became widespread

Role of the Government Traditional – no role Free enterprise – little government interference Enforces rules, monitors money, & protects people’s rights Makes sure companies don’t gain too much power

Role of the Government (cont.) Socialist – controls the major resources & industries Makes decisions about production, distribution, & use of resources Communist – controls all resources & makes all decisions Specifies which goods each factory will make