1. Economic Systems U.S. GOVERNMENT CLASS – UNIT 1

2. The Role of Economic Systems  Governments around the world must make economic decisions that include: 1. What and how much should be produced? 2. How should goods and services be produced? 3. Who gets the goods and services that are produced?

3. Capitalism – Definition and Key People  Definition: an economic system providing free choice and individual rewards/incentives for workers, investors, consumers and businesses.  This is the system that the United States has.  Key Person: Adam Smith, Scottish philosopher and economist who wrote The Wealth of Nations (1776)  Thesis: people’s greed and self-interest leads to economic success.

4. Capitalism - Characteristics 1. Laissez-faire : French word meaning “leave alone”. Government should keep its hands off the economy. 2. Private ownership and control of property and economic resources 3. Free enterprise – Businesses and consumers make their own economic decisions. 4. Competition among businesses 5. Possibility of profits – rewards/incentives

5. Advantages of Captialism?  People make their own decisions on what to buy or how they spend their money.  Lower taxes  Profits and rewards can lead to people working harder which makes the economy more productive.

6. Disadvantages of Capitalism?  Too little government control can lead to unsafe working conditions/products and monopolies.  Not everyone is successful (extremely rich people and extremely poor people)

7. Socialism – Definition/Key People  The government owns the basic means of production, determines the use of resources, distributes products and wages, and provides social services such as education, healthcare, and welfare.

8. Socialism - Characteristics  The distribution of wealth and economic opportunity is equal among people.  Government controls large and major industries – people still own their own businesses  Public ownership of most land, of factories, and most other means of production.  Countries like Tanzania, Denmark, Norway and Sweden have democratic socialism.

9. Socialism – Advantages?  More economic equality among people and equal opportunities  Free education (college too) and healthcare

10. Socialism – Disadvantages?  Less incentives to work hard and be productive  Higher tax rates  Too much government regulation

11. Communism – Definition and Key People  The central government controls all major economic decisions (like socialism)  Karl Marx – wrote The Communist Manifesto (1848) arguing that business owners rule society through their money, so workers need to unite to start a revolution.

12. Communism - Characteristics  Command Economy – all economic decisions are controlled by government  Government controls land, natural resources, industry, banks, transportation, mass communication, television, radio, internet and movie production.  No privately owned businesses.  Government tells you what job you have, gives you money and food.  China, Cuba, North Korea, (Russia used to be)

13. Communism – Advantages?  Government promotes equality  Government makes all decisions

14. Communism – Disadvantages?  No incentive to work hard  No individual decision making  Limited freedom  Usually everyone is poor

15. Processing Questions Complete and share your responses with your neighbor and then class.  1. What type of economic system does the U.S. have? Why do you think this is so?  2. Competition is an important factor in the U.S. economy. Should the government regulate prices? Why or why not?  3. Could communism ever be effective? If so, how? If not, why?