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
Mixed
Socialism
(Highly Controlled)
(Little Control)
Communism
Capitalism
2-3
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.
2-5
FREE-MARKET/CAPITALISM
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.
.
2-6
HOW FREE MARKETS WORK
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
2-7
LIMITS OF FREE-MARKETS
•
•
•
•
Inequality of Wealth- Causes National &
World Tension
Greed Compromises Ethics
Potential Environmental Damage
Limitations Push Country towards
Socialism = Government Regulation
2-8
COMMAND ECONOMY
Workers arrive at a factory in
the old Soviet Union in 1929.
• The government
makes economic
decisions about what
should be produced,
how much it should
cost.
• Two types of
command
economies are
socialism and
communism.
COMMAND ECONOMIES
Venezuela’s President
Hugo Chavez
 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
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.
•
•
•
•
Private & Public Ownership
Some Choices are Limited
Creates Social Equality
Reduces Individual IncentiveBrain Drain
2-11
Industrialized
Nations’ Tax Rate
U.S.
Austria/Japan
Italy
Canada
Germany
Spain/Sweden
France
Finland
Denmark
0%
10%
20%
30%
40%
50%
60%
70%
Source: Parade Magazine, Apr. 12, 1998.
2-12
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!
•
•
•
State or Gov’t ownership of
factors of production.
Central Planning/Controlled
Economy
Managers = Mandatory Party
Membership
2-13
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.