1

Economic Systems

2

Objectives

1.1. To compare different types of To compare different types of economic systemseconomic systems

2.2. To identify characteristics of the To identify characteristics of the private enterprise systemprivate enterprise system

3.3. To explore the four types of To explore the four types of economies the United States has economies the United States has experiencedexperienced

3

What is an Economic System?

• The way a society produces goods & The way a society produces goods & servicesservices

• The way a society provides and distributes The way a society provides and distributes goods & services to its citizens goods & services to its citizens

4

Three Main Types of Economic Systems

5

Strong Command/Communism

• Maintains strong governmental controlMaintains strong governmental control• Requires all productive resources to be Requires all productive resources to be

owned and operated by the governmentowned and operated by the government• Forbids competitionForbids competition• Permits little to no freedom in selecting a Permits little to no freedom in selecting a

career and workplacecareer and workplace• Practices heavy taxationPractices heavy taxation• Occurs in North Korea, Cuba and People’s Occurs in North Korea, Cuba and People’s

Republic of ChinaRepublic of China

6

Strong Command/Communism

• AdvantagesAdvantages– allows for large changes to quickly be madeallows for large changes to quickly be made– chooses jobs for everyone, including government chooses jobs for everyone, including government

provided medical and social servicesprovided medical and social services

• DisadvantagesDisadvantages– lacks in meeting consumer needslacks in meeting consumer needs– prevents people from making their own economic prevents people from making their own economic

decisionsdecisions

7

Moderate Command/Socialism

• Maintains medium Maintains medium governmental controlgovernmental control

• Practices governmental Practices governmental control in key industries, control in key industries, such as utilities and such as utilities and transportationtransportation

• Allows private ownership Allows private ownership in only non-vital industriesin only non-vital industries

8

Moderate Command/Socialism

• Allows competition in smaller, Allows competition in smaller, private sectorprivate sector

• Permits the right to choose career Permits the right to choose career and place of employmentand place of employment

• Practices high taxationPractices high taxation• Occurs in Sweden and FranceOccurs in Sweden and France

9

Moderate Command/Socialism

• AdvantagesAdvantages– provides medical care, education and provides medical care, education and

social security benefitssocial security benefits– allows businesses and individuals to keep allows businesses and individuals to keep

some profits for their effortssome profits for their efforts

• DisadvantagesDisadvantages– discourages small business ownership by discourages small business ownership by

heavy taxation and diminished incomeheavy taxation and diminished income– controls important business sectorscontrols important business sectors

10

Market/Capitalism

• Derives from the principle of individual Derives from the principle of individual rightsrights

• Practices little governmental controlPractices little governmental control• Encourages private ownership of Encourages private ownership of

business in all sectorsbusiness in all sectors• Supports competition in all areasSupports competition in all areas• Allows full freedom to choose career and Allows full freedom to choose career and

workplaceworkplace• Practices moderate taxationPractices moderate taxation• Occurs in the United States, Hong Kong Occurs in the United States, Hong Kong

and Germanyand Germany

11

Market/Capitalism

• AdvantagesAdvantages– allows freedom to make economic decisionsallows freedom to make economic decisions– practices low amount of governmental controlpractices low amount of governmental control

• Disadvantages Disadvantages – means sometimes great personal and financial means sometimes great personal and financial

risks must be taken with little or no guarantee of risks must be taken with little or no guarantee of even a minimal returneven a minimal return

12

Traditional Economies

• Occurs in less developed countriesOccurs in less developed countries• Allows economic activities to be ruled by Allows economic activities to be ruled by

traditiontradition• Ranks religious and cultural values as more Ranks religious and cultural values as more

important than economicsimportant than economics• Determines jobs according to ancestors’ jobsDetermines jobs according to ancestors’ jobs

13

Traditional Economies

• AdvantagesAdvantages– raises everyone to know his or her raises everyone to know his or her

station in lifestation in life– provides a stagnant and unchanging provides a stagnant and unchanging

economic life because of resistance economic life because of resistance to changeto change

• Disadvantages Disadvantages – stifles new ideas, technology and stifles new ideas, technology and

efficiencyefficiency– differentiates the economic roles differentiates the economic roles

and status of men and womenand status of men and women

14

Questions to Distinguish Economic Systems

1.1. What is the degree of What is the degree of governmental control?governmental control?

2.2. What freedoms are the people What freedoms are the people allowed?allowed?

3.3. Is competition allowed? If so, to Is competition allowed? If so, to what degree?what degree?

15

Adam Smith, Karl Marx, John Maynard Keynes

16

Private Enterprise System

• Is synonymous with the Market/Capitalist economyIs synonymous with the Market/Capitalist economy• Emphasizes private sectorEmphasizes private sector• Allows ownership of resources and businesses by Allows ownership of resources and businesses by

individuals in societyindividuals in society• Permits individuals, rather than government, to Permits individuals, rather than government, to

make economic decisionsmake economic decisions• Allows individuals to receive benefits and wages Allows individuals to receive benefits and wages

from employersfrom employers

17

Private Enterprise System

• Individuals have high levels of freedom to:Individuals have high levels of freedom to:– buy desired goods & servicesbuy desired goods & services– produce & sell itemsproduce & sell items– choose any career & workplacechoose any career & workplace

““People must have the freedom to buy, the People must have the freedom to buy, the freedom to sell, the freedom to try and the freedom to sell, the freedom to try and the

freedom to fail.”freedom to fail.”Adam SmithAdam Smith

Wealth of NationsWealth of Nations

18

Private Enterprise System

• Motivates businesses Motivates businesses to succeed by:to succeed by:– promoting competitionpromoting competition– meeting the wants & meeting the wants &

needs of customersneeds of customers– encouraging profitsencouraging profits

• Promotes entrepreneurship as an important Promotes entrepreneurship as an important aspect of an economyaspect of an economy– an entrepreneur organizes, manages and an entrepreneur organizes, manages and

assumes the risks of a business or enterpriseassumes the risks of a business or enterprise

19

Private Enterprise System

Characteristics of an Entrepreneur:Characteristics of an Entrepreneur:

20

Four Basic Economies the U.S. has Experienced:

21

Agricultural Economy

22

Industrial Economy

23

Service Economy

24

Information Economy

25

Quiz

1.1. What are the three main economic What are the three main economic systems?systems?

2.2. (T/F) Complete governmental control is a (T/F) Complete governmental control is a characteristic of moderate characteristic of moderate command/socialism.command/socialism.

3.3. What is another name for the private What is another name for the private enterprise system?enterprise system?

4.4. What three freedoms do individuals have What three freedoms do individuals have in a private enterprise system?in a private enterprise system?

26

Quiz

5.5. List four characteristics of an List four characteristics of an entrepreneur.entrepreneur.

6.6. Identify one feature for each of the Identify one feature for each of the four economies the United States four economies the United States has experienced.has experienced.

27

AcknowledgementsAcknowledgements

Krista ScottKrista ScottProduction CoordinatorProduction Coordinator

Jennifer DonaldsonJennifer DonaldsonGraphics EditorGraphics Editor

Geoff ScottGeoff ScottProduction ManagerProduction Manager

GW DavisGW DavisExecutive ProducerExecutive Producer

©MMIII, MMIVCEV Multimedia, Ltd.