The Study Of Economics Has Its Own Vocabulary

3.12 How can we compare economic systems?

Economic Systems in the World Today Traditional Economy An economic system based on farming, often subsistence farming, is a traditional economy. In the traditional economy, families and the community make their own decisions about what to grow and what to do with their products. They often exchange (barter) goods and services with one another whenever they need things that they cannot produce themselves. Usually, a traditional economy depends on farming, herding, fishing or a combination of such activities. Command Economy (Marxist Socialism / Communism) Marxist socialism is the economic system found in communist states such as the former Soviet Union and its satellites. It is characterized by ownership of property and operation of businesses by the state rather than by private individuals. The command economy operates in response to government orders. The government controls industry and agriculture and decides what goods will be produced, in what quantity, by whom, with what resources, and what prices shall be paid by consumers. Market Economy (Capitalism) The market economy is an economic system in which the means of production are privately owned and operated for profit. It developed as an economic system in the 1500s. Also called the capitalist system, this system permits individuals and businesses to decide what will be produced, offered for sale, and purchased. It is the market economy that is most strongly responsive to the laws of supply and demand. Business organizations produce what they think consumers want and sell at prices consumers are willing to pay. Mixed Economy A mixed economy is an economy that has a mix of economic systems. It is usually defined as an economy that contains both private-owned and state-owned enterprises or that combines elements of capitalism and socialism, or a mix of market economy and command economy. There is not one single definition for a mixed economy, but relevant aspects include: a degree of private economic freedom (including privately owned industry) intermingled with centralized economic planning (which may include intervention for environmentalism and social welfare, or state ownership of some of means of production). Other Economic Systems Used in the Past Manorialism The economic system of Western Europe in medieval times was called manorialism. It was based on the manor, a lord’s estate that often included one or more villages and the surrounding lands. The peasants and serfs lived in small houses close to the lord’s great house or castle. Fields, orchards, and forests surrounded the buildings. Serfs belonged to the manor. If ownership of the manor changed hands, the serfs stayed on the land. Serfs and peasants spent most of their time working in the lord’s fields and taking care of his animals. They could use some of the land to raise food for themselves. But they had to pay rent for the land on which they planted their own crops. Rent was usually paid in crops or services to the lord of the manor. Manors were self-sufficient. The needs of the inhabitants were provided for without help from the outside. Mercantilism The economic policy in which nations sought to export more than they imported is known as mercantilism. According to this theory, colonies existed only to enrich their parent country. The colonies sent to the parent country raw materials needed for its industries. Products manufactured from the raw materials in the parent country were then sold back to the colonies at a profit. This kept more wealth flowing into the parent country than leaving it. The wealth of a country was determined by how much gold or silver it held. These precious metals could come from mines the country owned or through trade. Colonies could be a controlled source of gold and silver. In order to retain a favorable balance of trade for the Europeans, colonies were not allowed to produce manufactured goods and they could sell their products only to the parent country and not to any other. Mercantilists believed in the use of tariffs (taxes on imported goods) to protect home industries from competition.

3.12 How can we compare economic systems? How would you Where did this Who makes economic What is the goal of the describe this economic economic system come decisions? system? system? from? Traditional Economy

Command Economy (Marxist socialism or communism)

Market Economy (capitalism) How would you Where did this Who makes economic What is the goal of the describe this economic economic system come decisions? system? system? from? Mixed Economy

Manorialism

Mercantilism