Transcript Economic Systems

Economic Systems
Free Enterprise
Emphasizes the importance of
individuals. Government is secondary
to that of the individuals.
 Businesses and consumers make the
decisions that are in their own best
interests, free of government
regulations.
 Businesses produce what they think will
make a profit, deciding themselves how
best to make their products.

Characteristics of Free
Enterprise

Ownership of Private property
– individuals are allowed to own and control things
Freedom to Make a Profit
individuals and business can gain from the risks that
they take.
Competition
competition is allowed and encouraged. It
encourages businesses to produce a variety of
products, so that consumers are able to shop for
the quality and price they want.
Advantages of Free Enterprise

Freedom To Make Economic Decisions
– Businesses can produce any product or service, in
any way they choose, as long as it is legal.
– Consumers are free to choose one brand over
another. They can buy as many products or
services as they can afford.
Efficient Use of Resources
businesses can use resources (land, labour,
capital, management) the most efficient way to
reduce costs. This benefits the producer and
consumer.

Introduction of New Products and Services
–
Businesses can increase profits by making new products.
Products are created to satisfy consumers’ needs or wants
as well as to make a profit fot the owner.
Better Quality at Lower Prices
Businesses that provide poor-quality products/services and
charge high prices usually lose customers. Businesses that
satisfy customer needs and wants will survive and prosper.
Disadvantages of Free
Enterprise

Uneven Distribution of Resources
– This type of economic system results in a greater
gap between the “rich” and “poor”. Some
individuals, who take the risk and exhibit initiative,
will benefit from this system. At the same time,
others are less able to benefit in such a system.
Unhealthy Products Products
due to less government regulation, this economic
system permits the manufacture of a great variety
of products, including dangerous products.
Centrally Planned

Ownership of Property
– private ownership of property is restricted or
disallowed entirely. The government (State) owns
the natural resources, thus giving them control
and the ability to manage the country’s scarce
resources.
Profits
All profits belong to the “State”. The government
decides for whom goods and services are made
available and at what price. Profit is NOT a motive
behind economic decisions.

Competition
– is not necessary because all businesses are
virtually owned by the government. There is only
one producer of each product in the economy,
therefore, there is no competition.
– For example, the Lada was a car produced under
the Former Soviet Union. It was the only car
made available to the public in that state.
Consumers had no alternative!
Advantages of Centrally
Planned Economies

Many Social Services
– Government provides a standard level of
education, health care, housing, transportation,
pension, etc..
– Citizens receive basic care and services from birth
to death.
– Programs benefit ALL of society, rather than those
who can afford it.

Guaranteed Basic Standard of Living
– Employees receive a set level of wages and
salaries, regardless of their talents and abilities.
– Greater attentionis paid to the entire group, rather
than one individual.
Efficient Use of Resources
There are no wasted resources because one large
government does all of the planning in the nation.
Disadvantages of a Centrally
Planned Economy

Restrictive Freedoms
– Individuals are not greatly involved in economic or
other types of decision making. Government
controls individual speech, religion, job selection
and housing location.
– Disobedience may result in imprisonment.
No Individual Incentive
Citizens have no incentive to work hard because
the benefits go to the government. This results in
less creativity by individuals and less risk-taking.
Characteristics of a Mixed
Free Enterprise Economy

Ownership of Private property
– individuals are allowed to own and control things,
however, there is government intervention.
– For example, in Canada, the “state” regulates who
can buy banks, what goods can be
imported/exported, where certain businesses can
be located, and the hours during which
businesses can operate.
Profit
profit is encouraged, however the government
applies many taxes that reduce the amount of profit.
(profit tax, sales tax, excise tax, tariffs, property tax)
Competition
Competition is promoted in a mixed free enterprise
system, however, any level of government can set
up a business of its own to provide competition.
The government uses laws to create and to control
competition.
Advantages of a Mixed Free
Enterprise Economy

Individual Incentive
– individuals who work hard and take initiative, can
make extra money and keep it.
Basic Social Services
All individuals have access to the essential social
services. The less advantages can still have an
acceptable level of housing, education, and health
care, because they are provided free or at a low
cost.
Consumer Protection
products require safety testing, businesses require
licensing and monitoring -- these all protect us!
Disadvantages of a Mixed
Free Enterprise Economy

High Taxation
– Taxes are very high thus discouraging businesses
and individuals
– Businesses must follow many rules and
regulations and prepare reports for the
government
Less Incentive
Due to the guaranteed standard of living,
individuals may not be tempted to work hard.
Those who do work hard, do not receive all of their
earned benefits due to the high taxation.
The range of Economic Systems
–
United States
Canada Sweden
North Korea