Economic Systems

Economic Systems

1. Capitalism: All or most of the factors of production (land and businesses) are privately owned by individuals and are operated for the individual profit of the business. This system leads to wealth creation. People have four basics rights: the right to own private property, the right to own a business and keep all of that business's profits, the right to freedom of competition, and the right to freedom of choice. (Nickels, McHugh, & McHugh, 2016, p. 34-35 & 45).

   • No country is truly capitalist, but it is the foundation of the U.S. economic system and most other industrialized nations. The U.S. is a mixed economy with an emphasis on freedom and capitalism. There is a high incentive to work hard because profits are retained by owners and workers are rewarded for their productivity. There is a wide variety of choice in the market and almost no scarcity or over-supply because supply and demand control the market. There is freedom of speech, press assembly, religion, job choice, movement, and elections. (Nickels, McHugh, & McHugh, 2016, p. 45).

2. Socialism: Most businesses are publically owned by the government so that the profits earned can be evenly distributed to the people. Some small businesses and shops may be privately owned, but the government owns most basic businesses such as utilities and factories. Citizens usually pay high taxes to pay for public social programs and services. (Nickels, McHugh, & McHugh, 2016, p. 41).

   • Sweden: Has a socialist economic system. The government controls education, health care, utilities, transportation, mining, and media. There is public ownership of major businesses, the govt. controls wages in public institutions which limits incentive. Some private ownership of small shops and businesses, in which there are capitalist incentives. Govt. restricts the people in many ways (job choice, freedom to go to college, etc.). (Nickels, McHugh, & McHugh, 2016, p. 45).

3. Communism: The government makes almost all of the economic decisions and owns almost, if not all, businesses and major factors of production. There may be shortages of items because the government does not know the needs of everyone in the country. There are many limitations to people's freedoms, usually private ownership of businesses is prohibited. In a communist system, businesspeople are uninspired because no incentives exist to motivate them to work hard. (Nickels, McHugh, & McHugh, 2016, p. 42).

   • North Korea: All businesses are publically owned. The government runs education, health care, and media. There is a huge emphasis on equality. There are many limitations to the people's freedom; they are not free to own a business, practice religion, change houses or jobs, or assemble to protest the governement. The markets are completely controlled by the government, so there is very little choice for the people. (Nickels, McHugh, & McHugh, 2016, p. 45).

4. Mixed Economy: The methods and goals of socialism and capitalism are combined to enable an economic system that retains the benefits of a free-market such as its incentives and its efficient allocation of resources while also encouraging the growth of the public sector ("mixed economy," 2013). Some allocation of resources are made by the market while others are made by the government (Nickels, McHugh, & McHugh, 2016, p. 43). There is private ownership of land and businesses with government regulation; the government controls some institutions.

   • Germany: The government controls some institutions and regulates private ownership of land and business. There is high taxation for the common welfare and an emphasis on a balance between freedom and equality. Publically owned businesses may have fewer incentives than ones that are privately owned. Because of the government's involvement in the market, there may be scarcity or oversupply. There are some restrictions on freedoms such as assembly and speech. (Nickels, McHugh, & McHugh, 2016, p. 45)

5. It is important to have an economic system because it controls the standard of living and quality of life for the people that live under it. An economic system determines how the market will appear to consumers, one with mostly private ownership, like capitalism, will have a wide variety of choice in the market which increases the standard of living. When the government has control over the market, as it does in both socialism and communism, there will be fewer choices in the market and more scarcity or surplus which decrease the standard of living for the people.