Economic Systems

Economic Systems

1. Definitions

   • Free market economy: is an economic system based on supply and demand with little to no governments control or coerced transactions. The goods and services produced, who gets them, and how the economy grows is determined by the buyers and sellers who negotiate the prices. No economy is purely a free market but a common name to describe a version of this is capitalism.
     • Capitalist economic systems: Under this system, the government has little to no ownership of the capital goods. All factors of production and distributions, such as land, factories, or stores, are owned by individuals or businesses and exist only for profit.
   • Command economy: is an economic system where the government largely decides the goods and services that are produced, who gets them, and how the economy will grow. Common adaptations of this system are socialism and communism.
     • Socialist economic system: Under this system, the government owns majority of the means of production, such as steel mills, coal mines, and utilities, and collects the profits so they may be evenly distributed amongst the citizens by way of social programs, free healthcare, and/ or free education. Small businesses are still run by entrepreneurs but they are taxed at a high rate to help pay for social programs and ensure social equality.
     • Communist economic system: Under this system, the government makes all economic decisions and owns all means of productions. Citizens have many limitations and most economies under communist rule suffer severe economic depression.
   • Mixed economic systems: With this system, it combines both the capitalist and socialist systems by allowing economic freedom, but the government intervenes to achieve social objectives. Most countries fall under this economic system

2. Examples?

   • Capitalism – Although no market is purely free, there are many cities and countries that come close. According to the 2019 index of economic freedom, Hong Kong, Singapore and New Zealand are the top countries in the world that have the most economic freedom. Socialism- Sweden was the most named example of socialism (Nickels, McHugh, and McHugh, 2016), however other countries with this economic system is India, Portugal, and Denmark. Communism- There are few existing countries that are communist. They include China, Cuba, Laos, North Korea, and Vietnam 4. Mixed Economy- Countries that utilize mixed economic systems are France, United Kingdom and Germany.

3. Pros and Cons

   • Capitalism- A great incentive to this system is the potential generation of wealth. Individuals and businesses are driven towards making a profit to better their financial standing and the government does not impose. The downside to this is the unfair distribution of wealth and the possibility of big businesses monopolizing the market, which creates an unfair degree of competition. Socialism- The biggest benefit of socialism is the social equality it promises. Perks like better transportation systems, free healthcare, and free college is very appealing. The downside to this system is the lack of incentives for entrepreneurs. The tax rates imposed in the countries under this system can be as high as 83%. Many high-earning professionals leave socialist countries is migrate to capitalist countries to avoid taxes.
     • Communism- The main component of communist societies is the encouragement of equality. The government has total control of the market and provides healthcare and education to its citizens, but this can also negatively impact the citizens and cloud the judgment of the officials to promote personal gain. The people of the country are oppressed and do not have many social freedoms, such as freedom to vote, freedom of religion, and freedom of speech.

4. The economic system in the United States?

   • According to Nickels, McHugh, and McHugh (2016), they boasted the United States (U.S.) has a capitalist economy, I believe we have a mixed economy. Entrepreneurs and large businesses can keep the profits from their business, minus the taxes of course, and we are allowed many economic freedoms that reflects a capitalist economy. However, the U.S. collects taxes from the citizens and they are used to fund the government assistance programs, such as Medicare/Medicaid, the Nutrition Assistance Program, and many more, which reflects a socialist economy.

5. Why is an economic system important?

   • An economic system is how society chooses to allocate resources, produce goods and services, and distribute them. Having an economic system provides an established and organized way to use and distribute and trade resources, scarce or plentiful.