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“Comparing Economic Systems”
I: Types of Economies
1. Often they exchange goods by bartering
(trading in kind).
2. agricultural or craft products
3. based on tradition, custom, or habit.
4. Non-industrial countries (third world)
some still have traditional economies
especially in small villages and remote places.
1. Households and businesses operate
together in the marketplace exchanging
goods and services.
2. businesses and individuals regulate this
production and exchange.
Decide how to produce, what to produce, and
for whom to produce it for.
3. Adam Smith and his Wealth of Nations
book became the basis for capitalism.
4. There are no PURE Market economies in
the world.
1. The Central Gov’t makes all economic
◦ Answers the 3 economic questions-How, What and
to Whom should we produce.
◦ Sets prices for wages, goods, services
◦ Makes production decisions.
2. Found in old communist countries.
◦ Ex: Former Soviet Union, China before 1990’s.
◦ Ex: Today it would be North Korea
3. Communist Manifesto (1848)=Karl Marx
argued that the economy would be fair only if
workers (proletariat) controlled production.
1.Combination of market and command economies.
2. Any production that requires a license, like making
medicine, or following a regulation like pollution controls.
3. The United States is founded on capitalism and free market
ideology but our economy is a MIXED Economy. The
government intervenes to:
to insure public safety,
honesty in the business marketplace,
promote society’s self-interest and public good.
Our Mixed Economy is a Free Enterprise System.
A: Each person is free to try and make money
◦ 1. Private property: important in free enterprise
◦ Patents and copyrights are protected.
◦ Patent is a license granted by the gov’t to exclusive
◦ A copyright applies to something that is created
like a book, movie, song, or work of art. The
copyright protects the owner/author/creator from
someone copying the work and making money.
1.Voluntary Exchange: people choose what or
how much to buy, or they can save their
2.Full Employment: almost everyone seeking
employment finds a job.
3. Allow businesses to make profit.
◦ Competition helps
 Keep prices low and quality high
 Fuels economic growth so more people prosper
 Economic efficiency
1. The firm with the lowest cost per item
produced is said to be the most efficient.
2. Productivity measures how much the firm
produces per every person it employs.
GDP: Measurement of a nation’s wealth.
What is it? Total market value of all final
goods and services produced in a country in a
given year, equal to total consumer,
investment, and government spending, plus
the value of exports minus of imports.
Per Capita GDP: total GDP divided by the
GDP is used to compare economic success
b/w nations
A: Socialism and Communism:
1. Socialism
 gov’t owns major industries and provides social
programs, like national health insurance, but taxes
its citizens heavily; France, Venezuela, Russia.
 Philosophy based on belief that wealth should be
redistributed throughout society.
 Can allow for some private ownership and
Centrally planned economy with all economic
and political power resides in the central
Communist gov’ts are authoritarian=strict
obedience to the gov’t no individual power.
Little or no private ownership
The term Communist was adopted by
Vladimir Lenin when he took control of Russia
in 1917
Socialism is an economic system
Communism is both an economic and
political system.
Most all developing countries; US, Canada,
France, Great Britain, China, Soviet Union,
Germany, have mixed economies.
The US leans more free market.
France, Venezuela, and Norway lean more
What is important to remember is that OUR
A: Market Economy
B: Command/Planned Economy
C: Mixed Economy