Economic Systems

Different economic systems answer the "what", "how" and "for whom"

questions differently. The main economic systems today are capitalism, socialism, communism, mixed economies and traditional economies.

Capitalism - is an economic system characterized by private ownership of most resources, goods and services. Capitalism relies on the market system to allocate resources, goods and services to their most highly used value. In capitalist economy what to produce is determined by consumers, how to produce is determined by profit seeking entrepreneurs, who maximize profit by producing in the most sufficient manner, and for whom to produce is determined by income and prices. In a capitalist system workers are generally paid according to how productive they are, and the distribution of income is unequal because people differ in their abilities.

Socialism - is an economic system characterized by government ownership of

resources other than labour and centralized economic decision making. Under the

socialist system the government authorities answer the "what", "how" and "for whom" questions. In socialist system government planners set wages and though wages are not equal for all workers, incomes tend to be more evenly distributed than in capitalist countries. In centrally planned economies government planners decide what goods will be produced and set the prices at which they are sold.

Communism - is an economic system in which all resources (including labour) are commonly owned and economic decisions making is centrally planned. According to communist theory, people contribute what they are able to the economy but receive what they need. In theory, this means that goods are produced for use rather than to earn profits and that everyone's needs are met.