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Chapter 3: Economic Systems - Who Owns and Controls the Factors of Production?

Terms in this set (15)

Economics
The study of how people produce the things they need and want.
Economic system
How a society produces and distributes the goods and services that its people need.

- Who owns the FoP
- Who controls the FoP
- Who decides what needs to be prodced
- Who decides how goods and services are distributed
Planned economy
An economic system where the government primarily owns and controls the factors of production. In a planned economy, the decisions about what gets products and how it gets produced are determined by a government plan.

PROS
+ Rational planning ensures equal/fair distribution of goods & services to all
+ Only the state has the power (legal authority) to provide for the entire nation
+ Only the state truly cares about all citizens (cf businesses who only care about their target market)

CONS
- State control tends to work poorly in practice b/c the range of people's needs is too great for the government to plan, produce and distribute effectively
- Govt are not as "close" to the people, so less motivated and not as informed abt people's needs
- State-run enterprises lack competition and so tend to be crappier
- Concentrates great power in the hands of a few; power corrupts (Stalin, who deliberately engineered artificial famines to starve Ukrainians; the disaster of MZD)
- Governments can be inefficient and wasteful bc bureaucracy
Communism (planned economy)
An economic system where all of the factors of production are controlled by the state, and where there is no private property.

Eg. NK ??? lol
Socialism (planned economy)
An economic system where the government owns or controls the majority of the FoP and directs the majority of productive activity.

There may be small privately-owned enterprises (eg. neighbourhood restaurants)

Eg. China, Cuba, Vietnam
eg. Soviet Russia and the "5-year plans" // Lenin + Bolshevik
- a catastrophe in China - farmers had no incentive to work, and people would "cheat" to meet the absurdly high quotas
Market economy
A country with an economic system in which individuals make the decisions about what gets produced.

PROS
+ Private individuals are closer to their costumers than govt planners, so will have better info about people's needs
+ Private entrepreneurs can respond more quickly to people's needs

CONS
+ Private enterprises can still get bureaucratic and unresponsive
Pure capitalism (market economy)
An economic in which all of the factors of production are owned by private individuals. All economic activity is privately run, citizens pay no taxes, and the government imposes no regulations on business.

- Wealth accumulates in the hands of business owners/entrepreneurs
- Pure capitalism can be said to reward success, but may be "unfair" b/c the strong get stronger, and the weak get weaker.
- There are no purely capitalist economies
Mixed market (market economy)
A country where ownership and control of most of the factors of production is in the hands of private individuals. However, the government provides a stable and conducive environment by providing public services, enforces laws, and provides regulation and oversight.

- They may also provide some products and services, in competition w private enterprises
Progressive taxation
A tax that takes a larger percentage from high-income earners than from low-income earners
Crown Corporation
An enterprise owned and operated by a government in Canada.

eg. Canada Post, Canadian Broadcasting Corp, LCBO
Nationalism
The process by which a government assumes ownership and control of resources, businesses, or industries, running them with the intention of benefiting the entire nation. linked w planned economies

eg. Soviet Russia // Lenin + Bolshevik
State-owned enterprise
A government owned organization that provides goods and services but does not seek to make a profit.

eg. When Mao took over literally all the companies in China
Command economy
A synonym for planned economy, but implies a greater degree of authoritarianism (eg. Stalin/Mao)
Perestroika
The name given to a series of laws instituted in the Soviet Union in the 1980s. Intended to reverse the economic policies of collectivisation and nationalism put in place by Lenin/Stalin after the Russian revolution. b/c the country was going into recession

eg. state enterprises were allowed to tailor production to customer demand, and now had to make a profit
- related: Margaret Thatcher and Ronald Reagan, who also argued for less intrusive govt
Privatization
The process of transferring ownership of a business or an industry out from government control, and into the hands of private owners. aka the opposite of nationalization

eg. Margaret Thatcher's policies
- the recent trend in the 80s and 90s for govts to release companies from state control
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