ECONOMIC SYSTEMS
An economic system is an organized way a society
provides for the wants and needs of its people, or
how a society answers the three basic economic
questions.
Capitalism
Capitalism is based on the theories of
Adam Smith, who wrote The Wealth of
Nations in 1776.
Capitalism is based on the idea of laissezfaire economics.

Adam Smith is known as the “father” of
capitalism and The Invisible Hand Theory.
Important beliefs include:
Free enterprise (economic freedom)
 Freedom of choice
 Private property
 Profit motive
 Competition
 Self-interest

The US Economy
The economic system in the United
States is based on a capitalist or market
system. Today it is known as a mixed
market economy due to government
regulation and oversight of the economy.
 In a market system, economic decisions
are made by individuals.
 What role do patents and copyrights have
in a market economy?

Circular Flow Diagram of a Mixed Economy
Other Economic Systems

Traditional Economies – economic
decisions are based on customs and
beliefs. Family and community ties are
strong.
Command Economies
In command economies decisions are
made by government leaders and
consumer choice is often limited.
 Both communism and socialism are
considered command, or planned,
economies.

Communism
Communism is based on the theories of
German philosopher Karl Marx.
 Marx wrote The Communist Manifesto in
1848.
 Under communism,
factors of production
are collectively
owned and directed
by the state.

Socialism
A system in which the government owns
some factors of production and has a role
in determining what and how goods are
produced.
 Private property ownership is allowed to
some degree.
 Socialism is considered less efficient than
capitalism.

A final thought…

Most economic systems today are mixed
and fall somewhere in the spectrum
between pure capitalism and pure
communism.