Types of Economic Systems

Vocabulary flashcards defining core economic concepts, the four main types of economic systems, government philosophies, and country-specific economic classifications.

Economic System

The way a nation makes economic choices about how the nation will use its resources to produce and distribute goods and services.

Resources

Also called factors of production, these are all the things used in producing goods and services, falling into four categories: land, labor, capital, and entrepreneurship.

Land

All natural resources provided by nature that are used in producing goods and services, such as land, water, forests, and minerals.

Labor

The physical and mental effort of people who work to produce goods and services.

Capital

Man-made resources used in production, including machinery, tools, equipment, buildings, infrastructure, and the funds needed to start and operate a business.

Entrepreneurship

The ability and willingness of individuals to organize resources, make business decisions, take risks, and create new products or services.

Scarcity

The difference between wants and needs and available resources.

Pure Market Economy

An economic system with no government involvement in economic decisions, where private firms account for all production and consumers decide what should be produced.

Pure Command Economy

An economic system where all resources are government-owned and one person (dictator) or a group of officials decide what, how, and for whom products are produced.

Traditional Economy

An economy shaped largely by custom or religion, which determine the who, what, and how of production.

Caste System

A social class separated from others by distinctions of hereditary rank, profession, or wealth, used in India to restrict occupational choice.

Mixed Economy

The most common type of economy today, classified based on the level of government intervention; in the U.S., the government accounts for about $\frac{1}{3}$ of all economic activity.

Capitalism

A political philosophy featuring private ownership of businesses and marketplace competition, most frequently associated with democracy.

Socialism

A philosophy where the government runs key industries (telecommunications, mining, transportation, banking) to keep prices low and provide employment for many.

Communism

A totalitarian form of government where the government runs everything, makes all decisions, determines schooling and housing, and theoretically has no unemployment.

Privatization

The process of selling state-owned industries to private individuals and companies, often occurring during the transition from a command economy to a free enterprise system.

Mixed Market Economy

The specific economic system used by the United States, where private individuals own most resources but the government enforces regulations, collects taxes, and provides public services.

Centrally Planned Economy

Another name for a Command Economy, as seen in North Korea, where the state controls most resources and determines production and distribution according to national plans.

Socialist Market Economy

The mixed economy of China, where the government controls important industries and sets policies while allowing private businesses and market competition to influence many decisions.