Economic Systems

Economic Systems

Communism
1. Communism is an economic system in which the government regulates almost all facets of the economy, and has intrusive regulations on citizens rights (Nickles, McHugh & McHugh, 2013).
2. Pros
  1. Meant to create a sense of equality among its people (Nickles, McHugh & McHugh, 2013). The government regulates pay among citizens to ensure that the poor are taken care of in a similar way to socialism (Nickles, McHugh & McHugh, 2013).
3. Cons
  1. People are not free to choose which job they want or where to live in communist economies (Nickles, McHugh & McHugh, 2013).
  2. The government has a difficult time regulating what/how much of products/resources to produce because production isn't based on supply and demand, but rather what the government feels is needed (Nickles, McHugh & McHugh, 2013). Because the government has to guess, this results in many countries don't have enough supplies for its people(Nickles, McHugh & McHugh, 2013).
4. North Korea is an example of communism. In this country, many people are without food and other vital resources due to overly aggressive government involvement in the economy and its citizens lives (Nickles, McHugh & McHugh, 2013).
Capitalism
1. Capitalism is a type of economic system that allows individuals to own, operate and determine how their business should run without government interference (Nickles, McHugh, & McHugh, 2013). This type of economy is also called a "free-market" economy and is meant to help a country grow and prosper financially because there is more freedom for businesses to function as they see fit, and it promotes innovation (Nickles, McHugh, & McHugh, 2013). Businesses in a capitalist country usually base their prices on supply and demand. The businesses will adjust prices based on how many people are buying a product and how much they have on hand (Nickles, McHugh, & McHugh, 2013).
2. Pros
  1. Innovation/Motivation: People tend to push harder and create more when motivated by the reward of a raise or promotion in Capitalist economies. This promotes employees/businesses to get creative and find new ideas to bring to the market (Nickles, McHugh & McHugh, 2013).
  2. Freedom: Businesses have the ability to decide on the prices of products based on supply and demand. They have the freedom to keep their profits, decide what to pay employees based on qualifications, and can choose where they want to do business/own property (Nickles, McHugh, & McHugh, 2013).
3. Cons
  1. Inequality: Many people believe that the capitalist economy is full of inequalities in pay. While many business owners increase their profits, many employees face stagnant pay and don't feel their employer's are "sharing the wealth" as one would expect (Nickles, McHugh, & McHugh, 2013).
  2. Monopolization of the Market: Some companies can take advantage of the freedoms offered to them in a capitalist economy. This can result in monopolization which occurs when on business is in control of the price of a product and is the only one selling the product on the market. Consumers are then forced to pay unnecessarily high prices (Nickles, McHugh, & McHugh, 2013).
4. The United States is an example of a country operating in a capitalist economy. Though there are regulations that businesses in U.S. must adhere to, at it's core, the businesses in the U.S. operate without government interference (Nickles, McHugh & McHugh, 2013). They have the freedom to retain their profits, hire employees they deem qualified, and pay salaries appropriate for employees (while adhering to minimum wage laws).
Socialism
1. Cons
  1. Higher taxes are common in socialist economies because the government uses the taxes (rates that reached 83% in some countries) from the wealthy to fund the many free social programs provided to their citizens (Nickles, McHugh & McHugh, 2013).
  2. There is a lack of motivation/innovation in socialist economies because there are fewer incentives for workers to work harder because all employees are essentially given the same pay. Because there is little motivation, most socialist countries face something called the "brain drain" which is where the smartest, most motivated and ambitious citizens leave a socialist economy for another to get rewarded for their intelligence and motivation (Nickles, McHugh & McHugh, 2013).
2. Pros
  1. Equality is said to be prevalent because of evenly distributed wealth, through taxation and government involvement.
  2. Typically employees of businesses will have a shorter work day, longer vacations, more sick leave and many social programs (health care, child care, education) that are free to the citizens (Nickles, McHugh & McHugh, 2013).
3. Socialism is an economic system where businesses are mostly government owned, and the wealth is evenly distributed among the country's people (Nickles, McHugh & McHugh, 2013). Some smaller businesses are privately owned, and the tax rate in a socialist economy is relatively high to pay for the social programs that are provided by the government, like education and health care (Nickles, McHugh & McHugh, 2013).
4. Sweden is an example of a country that's economic system is socialism. The government largely controls social programs,and the businesses within the country are publicly owned (Nickles, McHugh & McHugh, 2013). This country also has businesses that are privately owned and in those companies there is as higher number of incentives (Nickles, McHugh & McHugh, 2013). There are also some restrictions on the jobs a person can get, and how high of an education they can receive per government regulations (Nickles, McHugh & McHugh, 2013).
Mixed Economy
1. A Mixed Economy is an economy that has more than one economic system at play, and today, most countries actually operate with a mixed economy rather than one pure economic system. (Nickles, McHugh & McHugh, 2013).
2. Germany is an example of a mixed economy. In this country, there is a balance between government regulation and the freedoms associated with privatized businesses (Nickles, McHugh, & McHugh, 2013). There are higher taxes to accommodate welfare and defense spending needs, incentives/motivation among private owned businesses, and less associated with government employees (Nickles, McHugh & McHugh, 2013).
3. Pros
  1. There is a balance between command economies and free market economies allowing some of the social freedoms, but allowing some government involvement to prevent inequalities among citizens/workers (Nickles, McHugh & McHugh, 2013).
4. Cons
  1. Many countries, like Germany, can have a higher amount of government involvement that can limit some social freedoms, like freedom of speech, and assembly (Nickles, McHugh & McHugh, 2013).
Economic systems are important for a country because they help establish who will control resources and products within a country (Nickles, McHugh & McHugh, 2013). This is important because it allows a country to obtain wealth and depending on the economic system, will then determine where the money goes, and if it will be more government regulated, or left up to the people of the country. Either way, having a structure gives a country the guidelines needed to manage their country's economic resources (Nickles, McHugh & McHugh, 2013).

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	Created by Ashley Dise over 5 years ago