Download Economic Systems

Economic
Systems
and Economic Thinkers
Three Key Economic
Questions
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What economic goods will be
produced?
How will goods be produced?
For whom will the economic goods
be produced?
Each economic system answers
these questions in a different way.
Traditional economy
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Skills are passed from
parents to children
Human and animal
labor is used, rather
than industrial
machine power
Traditional production
used throughout
history and still in
many parts of the
world today
Capitalism
1.
2.
3.
4.
Private
ownership of
most property
Market is used to
exchange goods
Profit is main
motive of
production
Synonymsmarket system or
free enterprise
Socialism
Public ownership
of most property
2. Government
economic plan
used for key
decisions
3. Not for profit
4. SynonymsCommand Economy
1.
Formula for determining
government involvement

Share of economy consumed by
government = Government
consumption/Total Economy

E.g Sweden
Government consumption=72 b.
Total Economy = 259 b.
72/259=
35% government and 65% private
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(source Heritage Foundation)
Adam Smith
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Father of Capitalism
Wrote Wealth of
Nations in 1776
Called for free
markets without
government
interference (laissez
faire)
“invisible hand”
description of market
Karl Marx
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Father of Communism
Wrote The
Communist Manifesto
Believed that
capitalism should be
overthrown and
replaced by socialism
Under socialism
means of production
controlled by
government
Communism “from
each according to
ability, to each
according to need.”
Thomas Malthus
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Viewed economics as
the “dismal science”
Believed that
population would
outstrip production
Overpopulation would
lead to a downward
pressure on wages,
leading to poverty and
starvation
John Stuart Mill
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Supported free
markets
Supported some
forms of government
interventions based
on utilitarian
principles
Proposed a
progressive income
tax to redistribute
wealth and fund
government services
for the poor
John Maynard Keynes
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English economist
believed government
in a capitalist society
could stabilize the
economy
He proposed
increasing
government spending
and cutting taxes
during a recession
He is a main macro
economic theorist
Alfred Marshall
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Neo-classical
economist realized
that both supply
and demand
influence price
He developed
supply and
demand graphs
used in
microeconomic
analysis
The Great Debate
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Do you think that the collapse of the
Soviet Union and China’s movement
toward markets indicates the triumph
of capitalism over
socialism/communism?
Why or why not?