Economic Systems

Economic Questions about the production and distribution of goods 1. What goods will be produced? 2. How will the goods be produced? 3. For whom will the goods be produced?

What goods? Because of scarcity, no one country can produce everything it wants in the quantity it would like.

How? How will this change with modern technology? (robotics being used) Private v. publicly owned

For Whom? What are people willing to pay? Will the government decide who gets what?

Two Major Economic Systems Free Enterprise – individuals own most, if not all the resources and control their use. Sometimes called capitalism or market economy. Socialism – government controls and may own many of the resources. Referred to as command economy.

Differences Free Enterprise Resources are owned and controlled by private individuals. Govt plays a small role. Does not make decisions on what goods and services will be produced or how they will be produced. Little attention to income distribution. Socialism Resources are controlled by government and may be owned by govt. Economic plan – by govt – specific production of certain goods. Use govt power to redistribute income

Differences cont Free Enterprise Prices allowed to fluctuate. Private property protected. Socialism May control prices Govt should own non labor property so no one becomes too powerful.

Mixed Economies – those who have both features We cannot place a nation into one category or another. May contain elements of both Examples of how our govt has input in economy……… US ranked 6 on freedom chart by Wall Street Journal 1978 China gravitating toward free market elements.

Past, Present, and Future Traditional economy – all three economic questions based on skills, customs and beliefs of one generation to the next. Skills, business handed down.

Vision Behind Free Enterprise and Socialism Adam Smith – free enterprise is not only the system that produces the most economic wealth, but it is the most ethical of the economic systems. Benefit others through our own self- interest. What are the ethical responsibilities of corporations????

Karl Marx – believed many failures or injustices of free enterprise. Believed that capitalists, in pursuing their self-interests actually exploited the workers. Labor theory of value – all value in produced goods comes from labor.

Review chart on page 39 of reading.