ECONOMIC SYSTEMS

ECONOMIC SYSTEMS - Alternative Economic Systems Mixed...

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Alternative Economic Systems Mixed Capitalism: An economic system characterized by largely private ownership of the factors of production, market allocation of resources, and decentralized decision making; most economic activities take place in the private sector in this system, but government plays a substantial economic and regulatory role. Pure Capitalism: An economic system characterized by private ownership of the factors of production, market allocation of resources, and decentralized decision-making; most economic activities take place in the private sector in this system, but government plays a small role or no role at all in the economy. Command-Economy Socialism: An economic system characterized by government ownership of the non-labor factors of production, government allocation of resources, and centralized decision making; most economic activities take place in the public sector, and government plays a very large role in the economy. Decentralized Socialism: An economic system characterized by government ownership of the non-labor factors of production, largely markets allocation of resources, and decentralized decision making; most economic activities take place in the public sector, and government plays a major overseer role in the economy. In all societies-- no matter their economic system, there is no such thing as a free lunch. Shared Economic Realities: (1) Scarcity: All economic systems must deal with scarcity. What distinguishes economic systems is not that some economic systems have to deal with scarcity and others do not, but rather how different economic systems deal with scarcity. (2) Opportunity Cost: or no free lunch: Opportunity cost is a consequence of scarcity. It follows, therefore, that since all economic systems must deal with scarcity, all economic systems are faced with opportunity cost. In short, in all societies there is not such thing as a free lunch. (3) Rationing Services: Since all economic systems are faced with scarcity, all economic systems must ration goods. In the U.S. for example, this is largely done through (dollar) price. (4) The Law of Demand: The law of demand holds for all economic systems. (5) Rational Self-Interested Behavior: Rational self-Interested behavior means to act in such a way as to maximize the difference between the benefits and costs as perceived by 1
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the individual. It is generally assumed that individuals all over the world, no matter what their economic systems, exhibit this type of behavior. (6) What goods will be produced? How will the goods be produced? For whom will the goods be produced? All economic systems must address these fundamental economic questions. For example, will the economy produce more books or more fax machines? Implicit here is the question who decides what the economy produces.
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This note was uploaded on 01/28/2011 for the course ECON 1 taught by Professor Sm during the Spring '10 term at Laney College.

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ECONOMIC SYSTEMS - Alternative Economic Systems Mixed...

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