CHAPTER 18: SECTION 1

Amy De la Cruz

Lizbeth Morales

Luis Munoz

Ruby Perez

In the 1900’s, the world’s developed nations fell into 3 categories of economic systems-communism, socialism and capitalism.

CAPITALISM• Capitalism: the means of production are privately owned

• Ex: Germany, United States, India, & Japan

Advantages Disadvantages

• Efficiency• Freedom• Highly decentralized• Role of economy in

government much smaller• Consumer satisfaction• Flexibility to accommodate

change

• Ignores production of public goods, produces private goods and services

• Only produce for those who have demand

• Ignores the poor, unemployed, and less productive members of society

SOCIALISM• Socialism: an economic system in which government owns and

runs some of the basic productive resources in order to distribute output in ways deemed to be in the best interest of society.

• Ex: Finland, Canada, Ireland, & Belgium

Advantages Disadvantages

Those who are not fortunate or productive enough to earn a competitive income still share the benefits of society

If workers receive government guarantees of jobs, more workers will be hired than are necessary, driving up the cost of production. Government provides broader ranges of services taxes are generally higher in socialist countries.

COMMUNISM• Communism: a political and an economic framework where all property is

collectively owned, labor is organized for the common advantage of the community, and everyone consumes according to their needs.

• Ex: Cuba, North Korea, and the former Soviet Union

Characteristics Disadvantages

1. Central planning authority 2. Movement of resources,

particularly labor, is strictly controlled

3. The central planning authority makes all decisions

4. Individual risk-taking is strictly forbidden

1. Individual freedom is lost2. Lacks effective incentives that

encourage people to work hard

3. Fails to meet the needs and wants of consumers

4. Inefficiency of centralized planning