Chapter 2 Economic Systems

Comparison of Command and Market Economies

	Command Communism	Mixed Socialism	Market Capitalism
What?	Government	Gov't & Consumer	Consumer
How?	Government	Gov't & Consumer	Consumer
Who?	Government	Gov't & Consumer	Consumer
Examples	Cuba, former USSR, North Korea, China	France, Sweden, Switzerland	U.S., Canada, Japan, South Korea, Great Britain,
Resource Ownership	Government owned and controlled	Basic resources government owned Rest are private	Privately owned
Resource Allocation	Centralized Planning by Gov't	Key industries directed by Gov't	Market forces
Advantages	Drastic change possible Many public goods provided Equality for workers Little uncertainty Basic needs met	Safety net for non-productive workers Basic needs met Market forces used for non-essential goods Government directed by democratic votes	Individual freedom Gradual adjustments possible Limited government High standard of living Decentralized decision making Large variety of goods/ services High consumer satisfaction Efficient use of resources
Disadvantages	Poor customer satisfaction Little incentive to work hard Inefficient bureaucracy Poor allocation of resources Inflexible to minor forces Little initiative and innovation Little individual freedom	High cost of living High tax rates Public goods of poor quality Inefficient use of resources Little incentive to work hard	Basic needs unmet Public goods not produced Personal/business uncertainty Poor fit for intangible values (justice, education, health care), Market failure possible

Goals of U.S. Economic System (know definition and example of how this goal is met in the U.S.)

1.     Economic Freedom
2.     Economic Efficiency
3.     Economic Equity
4.     Economic Security
5.     Full Employment
6.     Price Stability
7.     Economic Growth

Trade Offs Among Goals

Can't achieve all the goals at the same time

Characteristics of Free Enterprise Capitalism

    1. Economic Freedom

Freedom to exchange: Voluntary Exchange (both parties benefit)

Freedom to risk: Profit Motive

    2. Private Property
Right to own and exchange property

Incentive to work, save, and invest

3. Price System
Allocates scarce resources to those willing and able to buy

Provides signals to the market about relative values

4. Competition
        Leads to efficiency

Between businesses for labor and resources
Between businesses for consumers
Between laborers for jobs
Between consumers for products and services 

    5. Entrepreneurship
Innovation provides variety in production and in goods
Economic profits encourage entrepreneurship
Patents, copyrights, trademarks protect intellectual rights

Primary Players
Entrepreneur
   Consumer (sovereignty)
   Government (protector, provider and consumer, regulator)