A. Economic systems determine what to produce, how to produce,
and who will receive production.
B. An economic system must also adapt to changing economic environments.
For example, America
must adapt to changes to September 11?
Smith described the beginning of capitalism.
1. His book,
The Wealth of Nations,
was the first description of capitalism.
2. Published in 1776, it described capitalism as it was practiced in 18th
D. Basic characteristics described by Adam Smith
1. Private property-the right to own resources and bequeath property
2. Freedom of enterprise-own
3. Freedom of economic choice-work/not work, spend/not
4. Role of self-interest
a. People are by nature economic creatures
b. Self-interest is a fundamental characteristic of people
5. Competitive market system
a. Many buyers and sellers
Market participants, buyers and sellers, have little control over price
c. Competition performs the organizing and controlling
functions for a market economy
6. Limited government
markets be with a hands-off philosophy)
government involvement has become an important political question in the
States during the last few decades.
E. Modern Capitalism has additional features
1. Complex Market System Setting Prices
2. Importance of Capital Goods and
requires company produce limit their product lines
b. Division of
Labor allows specialization by ability ad training.
described by 20th century
was an important addition
to the idea of
1. Change involves the creation of improved economic
structures based on technology and the
destruction of inefficient economic structures.
2. Capitalism allows this
destruction to take place.
G. Economic Systems
A. Pure capitalism as described by Adam Smith
B. Recent economic systems have
are Mixed Economies
(a mixture of Capitalism
collective ownership and management of
equally distributed economic resources.
Socialism, as practiced in Western Europe, has public
ownership of key industries
such as transportation and
a. The economic systems of Europe began moving toward more capitalism in the late 1970's
Thatcher, former prime minister of England, started this trend.
c. Ronald Reagan
agreed and stressed the market system during his presidency
ideal of those practicing a "Marxian system."
a. Named after 19th century philosopher
b. The public owns almost all wealth which is centrally managed, i.e., a
Courage explores how Ronald Reagan deplored Communism.
economy customs determines the economy activity of many developing countries.