Economic Systems

Economic Systems

1. Free Market Economic System

   • "When the market largely determines what goods and services get produced, who gets them, and how the economy grows" (Nickels, McHugh, & McHugh, 2016, "Chapter 2, Understanding Economics and How It Affects Business").
     • Capitalism
       • Where production and distribution are owned and operated by individuals that can decide what to produce, how much, at what price to sell the products, and where to manufacture the products or services (Nickels, McHugh, & McHugh, 2016, "Chapter 2, Understanding Economics and How It Affects Business").
         • Cons:
           • Large companies can monopolize the market for particular products.
           • Wealth tends to stay among the who are already wealthy.
           • There is a disadvantage to those who lack the competitive skills necessary for advancing in wealth such the sick, poor, children, elderly and disabled.
         • Pros:
           • Supply and demand are controlled by the market.
           • Individuals have the right to own and operate their own business and to keep the profits for themselves.
           • Individuals have the right to own private property.
           • Individuals have the right to choose where and what kind of work they would like to pursue.
           • Businesses have the right to fair competition.
       • The United States is considered a Capitalist Economy, however, there are some elements that are controlled by the government which leads towards a Mixed Economy.

2. Economic systems are important as they provide a standard of how an economy should operate, what should be produced and its value, how resources should be distributed, and determining who decides supply and demand.

3. Command Economic System

   • "When the government largely decides what goods and services will be produced, who gets them, and how the economy will grow" (Nickels, McHugh, & McHugh, 2016, "Chapter 2, Understanding Economics and How It Affects Business").
     • Communism
       • Where the government makes the majority of economic decisions, owns most areas of production, and dictates what can be produced, how it is produced, where it is produced, and who gets the product (Nickels, McHugh, & McHugh, 2016, "Chapter 2, Understanding Economics and How It Affects Business").
         • An example of communism is a country that dictates location, religion, occupation and incorporates heavy taxes.
           • Pros:
             • There is a lower unemployment rate.
             • There is free health care for everyone.
             • Everyone is provided equal opportunity to seek education.
             • There is social equality among everyone.
           • Cons:
             • Businesses are limited on growth by restrictions from the government.
             • There are no incentives which causes a lack of motivation.
             • There is no personal freedom as the government decides where you live, what job you have and what religion you are allowed to practice.
             • Widespread poverty.
             • Corruption of officials in charge.
     • Socialism
       • Where at least some businesses are owned and operated by the government so that profits can be distributed more evenly among the people (Nickels, McHugh, & McHugh, 2016, "Chapter 2, Understanding Economics and How It Affects Business").
         • An example of socialism is a country where taxes are higher to provide social services, the government is largely responsible for these services, and the goal of production is quality of life instead of profit.
           • Pros:
             • Since the government controls the economy there is no monopolization in production.
             • There is free education, heath care and child care for everyone.
             • Social equality so that wealth is distributed equally among the people.
           • Cons:
             • Has higher taxes.
             • The government has most if not all control and determines where and how money is spent or distributed.
             • Takes away incentives which causes lack of motivation.
             • Reduced amount of inventions and innovations as a result from brain drain.

4. Mixed Economic System (A mix of Free Market and Command Economic Systems)

   • "Where some allocation of resources is made by the market and some by the government" (Nickels, McHugh, & McHugh, 2016, "Chapter 2, Understanding Economics and How It Affects Business").
     • An example of a mixed economic system is a country where the market determines supply and demand, production is owned by both the government and individuals, and resources are distributed by both the government and individuals.
       • Pros:
         • Provides incentives.
         • Freedom to own and operate a business with minimal government regulations.
         • There is equal control between individuals and the government.
         • Lessens poverty level and increases job rates.
       • Cons:
         • Resources may not be distributed evenly.
         • The role of the government in business can be hard to determine.
         • Higher Taxes.
         • Balance between the facets of a command economy and a free market economy can be difficult to determine.