Capitalism and Command Economic Systems nEgjwfX6s8

Capitalism: The Theory Adam Smith- Wealth of Nations Every person pursues their own best interests An “invisible hand” promotes general welfare The government plays limited laissez-faire (“hands off”) role in society No government has a truly capitalist economy

Capitalism: Characteristics Private Ownership of businesses, resources, services, etc. Individual Incentive- every person can decide what to buy, where to work, how much to sell their labor for, etc. Profit- Individuals decide how to spend their money, innovation and entrepreneurs are willing to take risks because of high profit Competition allows consumers choices Prices determined by Supply and Demand

Types of Capitalist Business Organizations Sole Proprietorship Single individual (75% of U.S. businesses) (+) most flexible (-) owner personally liable for business debts and the raising of all capital PartnershipCorporation

Types of Capitalist Business Organizations Sole Proprietorship Single individual (75% of U.S. businesses) (+) most flexible (-) owner personally liable for business debts and the raising of all capital Partnership 2+ individuals (lawyers, doctors) (+) can draw on capital and talents of many people (-) conflict among partners Corporation

Types of Capitalist Business Organizations Sole Proprietorship Single individual (75% of U.S. businesses) (+) most flexible (-) owner personally liable for business debts and the raising of all capital Partnership 2+ individuals (lawyers, doctors) (+) can draw on capital and talents of many people (-) conflict among partners Corporation Many owners (shareholders) (+) can raise capital from thousands of investors (+) shareholders have limited liability for debt

Command: The Theory Wealth in a society should be distributed equally through a society Every person has the social responsibility to cooperate to better society Government promotes the general welfare w.com/watch/mon- june /socialism- studies

Command: Characteristics Public Ownership of Property Centrally Planned Economy: economic decisions made by government (who works where, what is made, etc) Public Welfare Emphasized: retirement pensions, universal healthcare, housing for the poor, paid vacations, unemployment payments, etc. (“welfare state”) High Taxation: 50-60% income taxation rate

Quiz Thursday Oct 7, 2010 Intro to economic notes (scarcity, opportunity cost, goals of economic policy) Capitalism theory and characteristics Types of businesses in capitalism Command theory and characteristics

Free Enterprise EconomyCommand Economy ADVANTAGES (+) DISADVANTAGES (-)