GOVERNMENT ECONOMIC SYSTEMS

WHAT IS ECONOMICS?

• The study of how goods and services are produced, distributed, and consumed.• The people who

make goods or services are called “producers.”• The people who buy

goods or services are called “consumers.”

THREE ECONOMIC SYSTEMS

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Communism

Socialism

Capitalism

(Highly Controlled) (Little Control)

Mixed

CAPITALISM

• Sometimes called “market economy.” Ex. U.S.A.• People own

companies and decide what to produce to make consumers happy.• Business owners can

earn big profits or can lose their money if a business fails.• Some businesses sell

stock to get more capital to invest.

New York Stock Exchange

UNDERSTANDING FREE MARKETS OR CAPITALISM

• CAPITALISM is an economic system in which all or most of the means of production and distribution are privately owned and operated for profit. No country is purely capitalist, but the FOUNDATION OF THE U.S. IS CAPITALISM.

• Capitalism is the foundation for the economics of England, Canada, Australia, and most developed nations.

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FREE-MARKET/CAPITALISM

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In a free-market system, decisions about what to produce and in what quantities are made by THE MARKET (not the government). Therefore, Consumers send signals to producers about what to make, how many, and so on through their buying behavior.

.

HOW FREE MARKETS WORK

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People under free-market capitalism have

four basic rights:

1. Private Property - individuals can buy, sell, own

property and pass it on.

2. Profit/Ownership - right keep profits.

3. Freedom of Competition - right to compete within

government guidelines.

4. Freedom of Choice - people can choose where they

live, work and what they do

LIMITS OF FREE-MARKETS

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• Inequality of Wealth- Causes National & World Tension

• Greed Compromises Ethics• Potential Environmental Damage• Limitations Push Country towards

Socialism = Government Regulation

COMMAND ECONOMY

• The government makes economic decisions about what should be produced, how much it should cost.• Two types of

command economies are socialism and communism.Workers arrive at a

factory in the old Soviet Union in 1929.

COMMAND ECONOMIES

In socialism, the government runs some industries, such as oil, and uses profits to pay for health care, education. Ex. Venezuela

In communism, the government runs all industries, owns all property, sets wages, and prices, and people must do as they are told. Ex. North Korea

Venezuela’s President Hugo

Chavez

SOCIALISM – IS AN ECONOMIC SYSTEM BASED ON THE PREMISE THAT BASIC INDUSTRIES SHOULD BE OWNED OR CONTROLLED BY THE GOV’T. SO THAT RESOURCES MY BE MORE EVENLY DISTRIBUTED. EXAMPLE: DENMARK &

NETHERLANDS.

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• Private & Public Ownership• Some Choices are Limited• Creates Social Equality• Reduces Individual Incentive-

Brain Drain

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Industrialized Nations’ Tax Rate

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

Denmark

Finland

France

Spain/Sweden

Germany

Canada

Italy

Austria/Japan

U.S.

Source: Parade Magazine, Apr. 12, 1998.

COMMUNISM – IS AN ECONOMIC AND POLITICAL SYSTEM IN WHICH THE GOVERNMENT MAKES ALMOST ALL ECONOMIC DECISION AND OWNS ALL THE FACTORS OF PRODUCTION. EXAMPLE: NORTH KOREA & CUBA. PROBLEM: GOV’T HAS NO WAY TO KNOW WHAT TO

PRODUCE BECAUSE PRICES DON’T REFLECT SUPPLY/DEMAND!

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• State or Gov’t ownership of factors of production.

• Central Planning/Controlled Economy

• Managers = Mandatory Party Membership

COMMUNISM VS. CAPITALISM

Capitalists say that people have no reason to do a good job in communism because everyone gets the same pay. Products are boring and poorly made.

Communists say that capitalism is unfair to the poor because people at the top of the company get rich while workers get low wages. They also say capitalists wipe out little companies and destroy the environment to get money.

COMMUNISM VS. CAPITALISM

• The Cold War from 1945-1991 between U.S. and Soviet Union was based on getting nations to line up on the communist side or capitalist side.• Today Russia allows

some capitalism.• Communist China also

allows some capitalism.

Factory workers in China

PUTTING POLITICS & ECONOMICS TOGETHER

Communist countries have been dictatorships in which leaders have tried to control all aspects of the country.

But not all dictators are Communists. Some want capitalist companies to come in and create jobs Ex. Batista in Cuba before Castro.

Democracies are sometimes capitalist and sometimes socialist. Voters may elect a leader who promises to help the poor through socialism. Or voters may prefer capitalism as a way to create more jobs.