Foundations of Government

Part 8: Economic Types and Systems

• Economy: the management of resources of a community, or country especially in the views of productivity and prosperity.

Types of Economies

• There are THREE major types:– Capitalism– Socialism– Communism

Capitalism

• The main motive for economic participation is profit.– Businesses are privately owned and operated.– Only select individuals benefit.

• Government’s role is very limited.

Socialism

• Political and economic system.– Government owns and operates businesses for

the good of the people.• Abolishes profit motive and competition as

goods are produced directly for consumption.

Communism

• Stateless, classless, society.• Common ownership and production.– Everyone contributes to society– Everyone receives a fair share of the benefits

Economic Systems

• There are FOUR systems that have emerged:– Traditional– Market– Command– Mixed

Traditional System

• Relies on tradition or customs to make decisions.

• Little room for innovation.• Lack modern conveniences, leading to a low

standard of living.• Often occurs in small communities

Market Economies

• Decisions are made by individuals based on trade and/or exchange.– Decisions are dependent on the outcome of

production rather than built in to the production plan.

Command Economy

• Governments make economic decisions in order to improve productivity through consolidation of resources.

Mixed Economies

• A market economy that allows for limited government interference and decision-making abilities

Examples

• The United States– Mixed capitalist economy

• USSR (note that this is NOT modern-day Russia)– Command Socialist economy

• No modern (1775 on) country has ever been truly communist.

Review

• What are the three types of economies?– Explain each.

• List them in order of least government involvement to most government involvement.

• Name the economic systems.– Explain each.

Foundations of Government

Part 9 Government and the Economy

Review

• What is government• What are the types of government?• What are the types of economies?• Which type of economy has the most

government interference? The least?

Government Participation

• In the US, the government has a few economic jobs:– Enforce Constitutional protections– Taxes– Federal Spending– Protect consumers• Information

– Provide public goods/services• Because they would be impractical for others to do

Government Participation

• While not all governments choose the economy of their society, the government usually supports it. – Example: In the US’s free market capitalist society,

the government tries to stay uninvolved in the actual business side of the economy, interfering only when society pressures them to do so.