Chapter 18 The Spectrum of Economic Systems Capitalism

Chapter 18 The Spectrum of Economic Systems

Capitalism �The means of production are privately owned �Supply and demand determine prices �Businesses are free to direct resources into activities that promise the greatest profits

Advantages of Capitalism �Efficiency �Freedom �Highly decentralized �High degree of consumer satisfaction �Flexibility to accommodate change �Wealth accumulation

Disadvantages of Capitalism �Does not always satisfy everyone’s needs �Ignores the production of many public goods �Produces for only those who have a demand (ignores poor people, unemployed and elderly people)

Socialism �An economic system in which government owns and runs some of the basic productive resources in order to distribute output in ways deemed to be in the best interest of society �Democracies

Advantages of Socialism �Addresses the FOR WHOM question directly �Those who are not fortunate or productive enough to earn a competitive income still share in the benefits of society

Disadvantages of Socialism �Less efficient than capitalism �Taxes are generally higher

Communism �Political and economic framework where all property is collectively owned, labor is organized for the common advantage of the community, and everyone consumes according to their needs.

Advantages of Communism �Equality �Health care, transportation, military and education are provided at little or no cost �Lack of uncertainty concerning careers and job security �Allows the economy to shift directions in a relatively short period of time

Disadvantages of Communism �Individual freedom is lost! �Lacks effective incentives that encourage people to work hard �Fails to meet the needs and wants of consumers �Inefficiency of centralized planning �Lack the flexibility to deal with day-to-day changes