UNIT 9 – COMPARATIVE ECONOMIC SYSTEMS

Chapter 2Communism

SocialismCapitalism

Mixed Economic Systems

Various Economic Systems Economic System – way in which a nation

uses its resources to satisfy its people’s needs and wants.

All economics systems are faced with answering the same basic economic questions. What should be produced? How should it be produced? For whom should it be produced?

Types of Economic Systems

Traditional System – system where economic decisions are based on customs and beliefs that have been handed down from generation to generation.

Types of Economic Systems

Command System – system which the government controls the factors of production and makes all decisions about their use.

Types of Economic Systems

Market System – System in which individuals own the factors of production and make economic decisions through free interaction while looking out for their own and their families best interests.

Which type of Economic System does the U.S. have?

Market System Why? What is a Market?

Process of exchanging goods and services freely between buyers and sellers.

Advantages and Disadvantages of a Traditional System

ADVANTAGES DISADVANTAGES Know what is

expected of you Strong family and

community ties

Change is discouraged

Production is inefficient

Choices are rare Lower and more

stable standard of living

Traditional Economies Inuit of North America Mbuti of Democratic Republic of Congo Aborigines of Australia Why do you think that these people

practice traditional economies? Lack on infastructure and transportation Little access to technology Limited human interaction outside of the tribe Poor formal education Don’t know much about life outside of the

tribe

Advantages and Disadvantages of a Command System

ADVANTAGES DISADVANTAGES People do not bear

the burden of making economic decisions

Government provided the needed resources for individuals

Lack incentives for work and inventiveness Government sets

salaries so people tend to not be motivated to work fast or hard.

People have limited choices in their lives and with their money

Command EconomiesNORTH KOREA PEOPLE’S REPUBLIC OF

CHINA

Advantages and Disadvantages of a Market System

ADVANTAGES DISADVANTAGES People have many

freedoms Choose a career Spend money Own property Make profit

Competition gives consumers many choices and lower prices

Concern for those you young, sick, or old to work Survival for these

people would be difficult without the government stepping in to assist in providing goods and services for these people

Who has Market Economies?

JAPAN UNITED STATES

What about mixed Econoimes? Mixed Economies – system that combines

characteristics of more than one economic system. Most systems are mixed, but lean more toward one

system than the other. What are some ways that the United States is

a mixed economy? People are free to make many economic choices for

themselves. (market) The government provides many free (taxpayer)

services to individuals. Public education, health care, medicaid, medicare,

social security, ect.

CAPITALISMEconomic system in which private

individuals own the factors of production

Characteristics of Capitalism(Free Enterprise)

Laissez-faire – “let the people do as they choose”

Government regulation is limited Started with just defense and keeping the

peace, now government regulates; quality of products, banking, working conditions, and the environmental impact.

Freedom of Choice Buyers and sellers have the freedom to

choose what to buy and produce Government may step in to regulate an industry

to protect consumers.

Profit Incentive – desire to make money is what motivates people to produce and sell goods and services. Risk of failure The relationship between profits and losses leads the

economy to become more efficient; drives changes Competition – rivalry among producers or

sellers of similar goods and services to win more business. Few barriers to entry Leads to efficient use of resources Large number of sellers

Private Property – whatever is owned by individuals rather than the government.

How does Capitalism drive new technology and resources?

Capitalism in America What are some economic choices that

you value as an America Teenager? Have a job and make money Purchase items that I want Freedom to choose by destiny

How can we (Americans) change out standard of living? Standard of living – the material well being of

an individual, group, or nation measured by how well their necessities and luxuries are satisfied.

SOCIALISMSystem in which the government

owns the major factors of production and attempts to manage output and distribution of goods and services.

Characteristics of Pure Socialism

Prices are set by the state, rather than by supply and demand.

Movement of resources and labor is strictly controlled.

Private property rights are limited and most factors of production are owned by the state. People can own tools used for their occupation

Individual risk is not allowed. State takes all risk when deciding which companies should be formed. Citizens pay for unsuccessful risk taking

The State answers the 3 basic economic questions What, How, and For Whom

Taxation is used to redistribute income

Types of Socialism Democratic Socialism – System that

works within the constitutional framework of a nation to elect socialists to office; the government usually controls only some areas of the economy.

Authoritarian Socialism – System that supports revolution as a means to overthrow capitalism and bring about socialist goals; the entire economy is controlled by a central government; also called communism.

Examples of Socialist Economies

Sweden

Where did Socialism come from?

Karl MarxHe viewed history as a constant struggle between the capitalists

(land owners) and proletariat (workers). He believed that the capitalists exploited the workers and took the profit that rightfully

belonged to them. Marx also believed that Capitalism was

doomed to fail. He predicted that capitalism would collapse and socialism would take its place.

Then socialism would evolve into communism, where need for

government would be little. Pure communism would form, where

workers would contribute their full abilities to society and in return,

take only what they needed from it.

COMMUNISM-Idealized society in which no government

is necessary-Authoritarian socialist system that supports revolution as a means to

overthrow capitalism and bring about socialist goals.

Isn’t it Ironic? What Marx believed communism to means

was… A system in which the need for government was

little, and that people worked for the good of the community and all that was needed was provided by the community for the use of the community.

What communism is today… The opposite of what he wanted The most government intense economic system

in which people have little or no say in government and very limited economic choices. They work for low wages and have few choices.

Examples of Pure Communism Economies

Kibbutz – Collective community in Israel where people share all resources as needed, and contribute all efforts to the good of the community. Clothes Food Shelter Help raise children and take care of elderly

parents

Examples of Communist Economies

Russia People’s Republic of China