Capitalism and Command Economic Systems

http://www.youtube.com/watch?v=3nEgjwfX6s8

Capitalism: The Theory

• Adam Smith- Wealth of Nations• Every person pursues their own best interests• An “invisible hand” promotes general welfare• The government plays limited laissez-faire

(“hands off”) role in society• No government has a truly capitalist economy

Capitalism: Characteristics

• Private Ownership of businesses, resources, services, etc.

• Individual Incentive- every person can decide what to buy, where to work, how much to sell their labor for, etc.

• Profit- Individuals decide how to spend their money, innovation and entrepreneurs are willing to take risks because of high profit

• Competition allows consumers choices • Prices determined by Supply and Demand

Types of Capitalist Business Organizations

Sole Proprietorship

• Single individual (75% of U.S. businesses)

• (+) most flexible• (-) owner

personally liable for business debts and the raising of all capital

Partnership Corporation

Types of Capitalist Business Organizations

Sole Proprietorship

• Single individual (75% of U.S. businesses)

• (+) most flexible• (-) owner

personally liable for business debts and the raising of all capital

Partnership

• 2+ individuals (lawyers, doctors)

• (+) can draw on capital and talents of many people

• (-) conflict among partners

Corporation

Types of Capitalist Business Organizations

Sole Proprietorship

• Single individual (75% of U.S. businesses)

• (+) most flexible• (-) owner

personally liable for business debts and the raising of all capital

Partnership

• 2+ individuals (lawyers, doctors)

• (+) can draw on capital and talents of many people

• (-) conflict among partners

Corporation

• Many owners (shareholders)

• (+) can raise capital from thousands of investors

• (+) shareholders have limited liability for debt

Command: The Theory

• Wealth in a society should be distributed equally through a society

• Every person has the social responsibility to cooperate to better society

• Government promotes the general welfare

http://www.thedailyshow.com/watch/mon-june-7-2010/socialism-studies

Command: Characteristics

• Public Ownership of Property• Centrally Planned Economy: economic

decisions made by government (who works where, what is made, etc)

• Public Welfare Emphasized: retirement pensions, universal healthcare, housing for the poor, paid vacations, unemployment payments, etc. (“welfare state”)

• High Taxation: 50-60% income taxation rate

Quiz Thursday Oct 7, 2010

• Intro to economic notes (scarcity, opportunity cost, goals of economic policy)

• Capitalism theory and characteristics• Types of businesses in capitalism• Command theory and characteristics

Free Enterprise Economy Command EconomyADVANTAGES (+) ADVANTAGES (+)

DISADVANTAGES (-) DISADVANTAGES (-)