Three Economic Systems

CommunismCommunism

SocialismSocialism

CapitalismCapitalism

(Highly Controlled(Highly Controlled)) (Little Control(Little Control))

MixedMixed

Free-Market Capitalism

• Private Property

• Business Ownership/ Profits

• Freedom of Competition

• Freedom of Choice

Socialism• Private & Public Ownership

• Some Choices are Limited

• Creates Social EqualityCreates Social Equality

• Reduces Individual Incentive Reduces Individual Incentive - Brain Drain- Brain Drain

Communism• Public Ownership

– Almost all major factors of production

• Central Planning/Controlled Economy

• Shortages of food and other products Shortages of food and other products may developmay develop• Lack of motivation to work hard for Lack of motivation to work hard for business peoplebusiness people

Mixed Economies• Free-Market Economy = Capitalism

• Command Economy– Socialism– Communism

• Trend Results in Blend/Mix– Capitalism > Socialism– Socialism > Capitalism

Free-Market Competition

SellersSellers

OneOne ManyMany

MonopolyMonopoly

OligopolyOligopoly

Monopolistic Monopolistic

CompetitionCompetition

Perfect Perfect CompetitionCompetition

Limits of Free-Markets• Inequality of Wealth- Causes

National & World Tension

• Greed Compromises Ethics

• Limitations Push Country towards Socialism = Government Regulation

Industrialized Nations’ Top Individual Tax Rate

0% 10% 20% 30% 40% 50% 60% 70%

Denmark

Austria

France

Spain

Italy

Germany

Japan

U.S.

Why is the U.S. an Economic Success?

Major ReasonMajor Reason PercentPercent**

ConstitutionConstitution 8585

Free ElectionsFree Elections 8484

Free Enterprise SystemFree Enterprise System 8181

Abundant ResourcesAbundant Resources 7878

Cultural DiversityCultural Diversity 7171* Respondents could choose more than one.* Respondents could choose more than one.

Source: Investors Business Daily Survey