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Economic Systems Ch. 23 Capitalism Socialism Communism
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Economic Systems Main questions for Economics - what, how, who ALSO
- who decides what, how are goods distributed, what will be taxed, what social services if any
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Capitalism “Wealth of Nations” - Adam Smith
- government should stay out of economic decisions. - classic capitalist economics - the free hand of competition will improve the lot of everyone.
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Capitalism - government should promote and protect free play and supply and demand.
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Capitalism Free Enterprise System (Free Market)
Factors of Production are owned by private individuals or corporations. Factors of Production 1. 2. 3. 4.
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Capitalism Entrepreneur
combine factors of production to start new business and fuel economic growth - Not Easy - important to our economy
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Capitalism 4 basic elements to Free Enterprise
Private ownership - factors (resources) are owned by people or companies Land,labor,capital is yours - you do with it what you want. (property rights)
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Capitalism Individual Initiative - private persons control the production and distribution of good & services. Profit - business leaders are willing to take risks. You get benefit. Competition - keeps things fair. Keeps prices low and quality high
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Capitalism Supply & Demand have big impact on prices.
- business - supply side of market - consumer - demand side of market - supply is up prices drop - supply is down prices rise
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Capitalsim - Demand is down prices drop - Demand is up prices rise
- Supply & Demand must work together to find a balance in market. (equilibrium)
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Capitalism Monopoly (bad for competition)
one source produces product or service Trust - several companies in same industry working together. -oligopoly competition -monopolistic competition
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Capitalism Mixed Economy
- many economies around the world are mixed, including U.S. - government participates in a free enterprise. (Mostly regulation)
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Capitalism Business organizations
* Sole Proprietorship - owned by a single person (very small) * Partnerships - two or more people * Corporatioins - Multiple shareholders (limited liability) (taxes)
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Socialism equal distribution of wealth Centrally planned economy
Industrial Revolution - rapid industrial growth - agriculture to industrial I.R. Not good for everyone
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Socialism Karl Marx - modern day socialism - communism
“Communist Manifesto” - concepts on Communism “Das Kapital” - theories on Capitalism
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Socialism Marx - “All of mankind is a class struggle”
Dominating class - Bourgeoisie Dominated class - Proletariat Marx - “Proletariat will revolt and bring down Bourgeoisie”
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Socialism -very violent and bloody revolution
_________________________________ Socialistic tendencies Nationalization - placing private industries under govt control.
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Socialism - dominant industries can be nationalized.
Public Welfare - try to equally distribute necessities and services (welfare states) - health care, retirement, college education, disability
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Socialism Taxation - taxes are high in a socialist economy
needed to provide welfare services needed to equally distribute wealth - Centrally planned economy (command)
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Socialism - govt can direct economy to develop it and to help meet targets that are set. - some countries have more of this than others - many countries are considered mixed
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Socialism Developing Countries - no large traditional industry
- large industry is owned by foreign interests - Nationalization helps - able to develop key industries - Authoritarian rule is prevelent
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Socialism Pros & Cons too much govt - too much red tape
Not as much individual initiative - Not as much freedom in economic decisions Economies are too complex to be left to govt planners Not as much incentive to work hard
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Socialism evens out inequalities - socialism has more morals
Much more fair for everyone More workers rights in the work place
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Communism Referred to as a type of economy, government, and way of life Once very popular Karl Marx - developed Communism - classless society - collective ownership of means of production
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Communism - free enterprise vs. labor theory
- value of something = amount of labor put into it - who should get most of the profits -The State -govt and institutions gave capitalists power over working class
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Communism - Religion - “opiate of the people”
Marx wanted a free classless society -citizens own everything together (collective) -no poor working conditions -no unemployment -abundant goods would be based on need
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Communism -Command economy - (central) Communist party makes all govt, social & economic decisions -Marx - Revolution would occur in most industrialized countries first. *happened in Russia first
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Communism Five year plan - staple of Communism
- shows how leaders want economy developed over next 5 years. -sets goals, what industry will take precedence, what to produce, sets prices, decides how goods will be distributed.
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Communism Collectivization - merger of private farms into one large govt owned farm. State ownership - industry and factors of production owned by govt. - not as intense in some countries today * Many countries that are communistic are beginning to allow some free market play
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