EMC Publishing LLC 2 Section 1 Economic Systems

2 Section 1 Economic Systems © EMC Publishing, LLC

Three Economic Questions • All nations in the world must decide how to answer three economic questions about the production and distribution of goods. • What goods will be produced? • How will the goods be produced? • For whom will the goods be produced? • economic system © EMC Publishing, LLC

Two Major Economic Systems • Free enterprise: individual choices • capitalism or a market economy. • Socialism: government • a command economy. © EMC Publishing, LLC

Major Differences Between Free Enterprise and Socialism • The government plays a different role in each type of economy. • free enterprise system: resources are owned and controlled by individuals. • socialism, these resources are controlled by the government. © EMC Publishing, LLC

Major Differences Between Free Enterprise and Socialism (cont. ) • In a free enterprise system, the government plays a small role in the economy. • In a socialistic system, the government may make these decisions. © EMC Publishing, LLC

Major Differences Between Free Enterprise and Socialism (cont. ) • Socialism: Central Planning • Income distribution: Taxes. © EMC Publishing, LLC

Decentralized Socialism Versus Communism • Decentralized socialism and communism • socialism and that communism is a particularly strong form. • oversees much that occurs in the economy but does not control every • Communism: government comes close to controlling all legal economic activities. © EMC Publishing, LLC

Mixed Economies • A country’s economic system may contain some parts of free enterprise and socialism. © EMC Publishing, LLC

Exhibit 2 -1 from the Student Text 1. 0 Less economic freedom © EMC

The Visions Behind Free Enterprise and Socialism • A vision is a sense of looking at, understanding, and explaining how the world works. • Adam Smith was an eighteenth-century economist whose ideas are fundamental to free enterprise. • Greatest good for the majority of the people • Self-interest = invisible hand © EMC Publishing, LLC

The Visions Behind Free Enterprise and Socialism (cont. ) • Karl Marx was a nineteenth-century economist who pointed out what he believed to be many of the failures and injustices of free enterprise. • socialism and communism. • Marx did not see self-interest as leading to good things. • Capitalist exploit workers • LABOR THEORY OF VALUE • SURPLUS VALUE (PROFIT) SHOULD GO TO WORKERS © EMC Publishing, LLC

Friedrich Hayek and the Road to Serfdom • Economist Friedrich Hayek (1899– 1992) published a book titled The Road to Serfdom. • Hayek believed that central or government planning lead to a kind of dictatorship, • Unfree society • Berlin after WWII. © EMC Publishing, LLC