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Comparing Economic Systems
Economics is the study of …?
• Economics is the study of human efforts to satisfy unlimited wants and needs through the use of limited resources.
Every country has to choose how to use its resources to produce and distribute goods and services• What and how much should be produced?
• How should goods be produced?
• Who gets the goods and services
Resources
• Peoples wants and needs are unlimited
• Resources to fill those wants and needs are limited
• Whose wants and needs are fulfilled and to what extent are they fulfilled?
Resources
• Food
• Energy
• Labor
• Raw Materials
• Services
An economic system is
• The system or way a country chooses to use and distribute…its resources to produce and distribute goods and services for its people.
• Capitalism
• Socialism
• Communism
Capitalism
• An economic system based on private ownership of productive property (farmers fields, gold, natural resources) U.S., Germany and Japan
Four Factors of Production
• Land – resources
• Labor - work
• Management (MGMT) – organize and decide
• Capital - $ and machinery
Capitalist
• Has capital and puts it to productive use
• Another name for a capitalist economy
• Free-Enterprise system
• Free – Market system
People are free to start and run their own businesses
Free Enterprise System
• Five characteristics of a free enterprise system– Private Ownership– Guarantee of Property Rights– Private Decision Makers– Competition– Freedom of Choice
Private Ownership
– individuals or groups own most of the means of production
Guarantee of Property Rights
– right to own property
Private Decision Makers
– decisions of what to produce left to individuals and companies
– decisions of how to produce left to individuals and companies
– decisions of how much to produce left to individuals and companies
Competition
– businesses compete with one another– law of supply and demand
Freedom of Choice
– consumers can choose from many products and services
• Does the United States really have a capitalist economy?
• Are we really free to do whatever we want with our productive property?
Mixed Economy
• Why is the U.S. called, a mixed economy?
• Private business and the government play a part in the economic system
• Regulation of business – cars – seatbelts• Government runs business• Government grants license or utility –
PECO, Comcast, Pa American Water Company
Advantages of A Capitalist System
• Everyone has an opportunity to succeed• “The harder you work, the greater the reward”• Spawns/rewards innovation• Coexists with “human nature” “Greed is
good!”• Allows for a high degree of freedom• Works along side democracy• Economies of a country grow rapidly
Advantages of A Capitalist System
• Adam Smith – (Father of Capitalism, author of The Wealth of Nations, 1776)– The free market benefits society– Self interest leads to a collective good
Disadvantages of A Capitalist System
• Inequality; Benefits not distributed equally
• Can lead to irrational behavior; “Greed is Good?
• Creation of Monopolies
• Great poverty
• Limited government control
• People are not treated fairly
• Failure of the “American Dream”
Kinds of Business in a Free Enterprise System
Kind Advantages Disadvantages
Sole Proprietorship-A business owned by one person
Partnership- A business owned by two or more people
Corporation- Has many owners called share holders. Corporations are owned by the public
Partnership
Corporation
• 80% of U.S. business are small businesses
Capitalism• A different approach
– Capitalism is not about “Greed” or maximizing your profit by being a winner and beating your competition.
– The way to maximize your benefit is not just seek your own self interest but to seek a way that benefits the group as well
– Capitalism is about people acting in each other’s own self interest and the society benefiting as a result. This works because achieving your self interest requires serving others.
Capitalism
• In order to profit you have to provide a product or service some one else values. Bill Gates, Michael Dell, and Stephen Jobs are very, very wealthy because everyone values Microsoft Windows and Office, iPhones, Macs, and laptops.
• John Nash Ideas beyond the left/right, red/blue, and liberal/conservative thinking
Pure Capitalism
Gov. Economy
Mixed Economy
Gov. Economy
Capitalism
Capitalism
• Real People
• Capitalism and "real people"
Capitalism Benefits the Common Man!
• “Chances to Succeed” – K Allen• “Creates the best products” – M Purcell• “encourages competition” – B Hagel• “We can own our own businesses” – A Jablonski, A
Manning, J Bankowski• “Opportunity to make our own $” – J Pigeon• “Encourages/rewards our best effort” – B Chronister• “Working to benefits others through your own personal
benefits” – A Ignus, A Alford• “Earn what you work for” – N Martorella
Capitalism Benefits the Common Man!
• “the market leans toward efficiency” – C Madrack• “create opportunity for yourself” – H Falco• “gives you more freedom” – M Kampmeier
Capitalism Benefits the Common Man!
• “keeps prices low” – N Ozoroski
• “equal opportunity to succeed” – A Machita, C Rivers
• “consumers have choices” – J Schwed
• Competition leads to better performance” – P Sheridan
• “Allows for better products to become available” M Cravetz
• “People can profit” – M Collilouri, Joey Villante
• “Incentive/motivation to better themselves” – A Stagliano, D McCrary
• ‘Start you own business” - B Nguyen, J Culp
• “Competition leads to better prices” – J Cook
Capitalism Benefits the Common Man!
Time for the Quiz
AP Government Chapter 1 Text Question
• James Madison, wrote” If men were angels, no government would be necessary. If angels were to govern men, neither external or internal controls on government would be necessary.” Explain what this quote means and what kind of controls Madison put into the Constitution a a consequence of his beliefs.