Economic Organization of Society

 

Economic Problems a Society Must Solve

1. What should be produced? How much?

2. How will society produce it?

3. For whom should society produce?

 

Types of Economic Systems

1. Capitalism: An economic system based on private property and market forces in which individuals answer the questions of what, how, and for whom to produce. Individuals follow their self-interest, and the market forces of supply and demand coordinate individual actions; government can play a role in defending property rights and ensuring a fair playing field among economic actors.

   1. Welfare capitalism: The economic system that has evolved in most developed countries, including the U.S. Under welfare capitalism, the market system still operates, but the government plays an increasing role in the regulation of markets in order to better provide for the basic welfare of all its citizens.

2. Socialism: An economic system based on government ownership of property and control of economic decisions. There are different degrees of socialism.

3. Communism: An economic system based on individuals’ goodwill toward one another; property is collectively owned and society decides what, how, and for whom to produce, with the best interests of all its members in mind.

 

The U.S Economy

The U.S. economy consists of businesses, households, and government.

1. There are two types of markets at work: (1) factor markets, where households supply labor and are paid wages and salaries, and (2) goods markets, where households purchase the productive output of businesses.

2. Businesses are the private producing units in the economy. They are organized as sole proprietorships, partnerships, or corporations.

3. Households supply labor to firms and guide what firms produce through their demands in the market.

4. Governments collect taxes in order to spend money in ways society deems fit. Government also develops the rules to guide the relationships between businesses and households.