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Economic Systems

The document discusses economic systems, describing capitalism and a market economy where firms and households act in self-interest to determine resource allocation and production without government intervention, though no truly free markets exist. It notes advantages like entrepreneurship incentives and efficient resource use through competition, as well as disadvantages like lack of support for disadvantaged groups and priority of economic over social needs.

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Megan Adeline Hale
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35 views1 page

Economic Systems

The document discusses economic systems, describing capitalism and a market economy where firms and households act in self-interest to determine resource allocation and production without government intervention, though no truly free markets exist. It notes advantages like entrepreneurship incentives and efficient resource use through competition, as well as disadvantages like lack of support for disadvantaged groups and priority of economic over social needs.

Uploaded by

Megan Adeline Hale
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Economic Systems

Capitalism AKA Market Economy


In a free market economy, firms and households act in self-interest to a determine how resources
get allocated,a what agoods get produced and who buys the goods. This is a opposite to how a
command economy works, where the central a government gets to keep the profits.

There is no government intervention in a pure markaet economy (“laissez-faire“). However, no


truly free market economy exists in the world. For example, while America is a capitalist nation,
our government still regul a ates (or attempts to control) fair trade, governmenta programs, honest
business, monopolies, etc.

In this type of economy,a there is a separationa of the government and the market. This separation
prevents the government from becoming too powerful and kaeeps their interests alignaed with that
of the markets.

Advantages
• Consumers pay the highest praice they want to, and businesses only produce profitable
goods and services. There is a lot of incentive for entrepreneaurship.
• This competition a for resources leads to the most efficient use of the factors of production
since businesses are very competit ive.
• Businesses invest heavily in research and development. There is an incentive for constant
innovation asa companies compete to provide better products for consumers.

Disadvantages
• Due to the fiercely competitive nature of a faree market, buasinesses will not care for the
disaadvanataged like the elderly or disabled. This lack of focus on societal benefit leads to
higher income inequality.
• Since the market is drivean solely by self-interest, economic needs have a priority over
social and human needs like providing healthcare for the poora. Consumers can also be
exploited by moanopolies.

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