2. Socialism

Socialism is economic system which, in theory, is based on individuals' good will toward направляет others, not on their own self-interest: in principle, society decides what, how, and for whom to produce.

Soviet-style socialism – an economic system that uses administrative control or central planning to solve the coordination problems: what, how, and for whom.

3. Capitalism

Capitalism is an economic system based upon private property and the market in which, in principle, individuals decide how, what, and for whom to produce. Under capitalism, individuals are encouraged способствует to follow their own self-interest, while market forces of supply спрос and demand требования are relied полагается upon to coordinate those individual pursuits занятия. Distribution of goods is to each individual according to his or her ability, effort, and inherited property. унаследованые свойства

Private property rights – the control a private individual or firm has over an asset активы or a right. The concept of private ownership must exist and must be accepted by individuals in society.

How production generates income in the market economy: circular flow течение of income and expenditure расход

Imagine an economy in which all goods and services are made available through markets. Business firms acquire приобретать resources from households, whose members provide labor services, entrepreneurial talent, and funds запас to acquire приобрести new capital. Household members also provide natural resources it they own land.

The illustration in fig. 2.1 gives you a simplified overview обзор of a pure чистая market economy.

Basic tents that define capitalism:

1. private property (land, capital);

2. freedom of enterprise and choice;

3. self interest as dominant motive;

4. competition;

5. reliance доверие on the market system

6. a limited role for government;

7. the use of advanced передовые technology and large amounts of capital goods;

8. specialization;

9. using of money.

Figure 2.1. The circular of income and expenditure in a market economy:

1 – expenditures;

2 – purchases покупная цена of goods and services;

3 – income: wages зарплата, interest, rent, and profit;выгода

4 – resources;

5 – payments; оплата

6 – labor, capital, funds, natural resources, and entrepreneurship;

7 – revenue; доход

8 – supply запас of goods and services.

Specialization and Exchange обмен

Specialization and division of labor means that workers and entrepreneurs devote most of their time to produce one or a few goods and services. These specialists sell the goods or services they specialize in and then use their incomes to buy goods and services they want that are offered for sale by other specialists. In this way specialization and voluntary exchange allow people to enjoy additional gains прибыль from existing production. Such exchange involves mutual gains to the traders. If no one else is harmed when people specialize and trade in goods and services and there is no deception обман, then more benefit can be obtained from an existing amount of production.

In what ways does human specialization called the division of labor:

1. makes use of ability способности differences;

2. allows позволять learning by doing;

3. saves time.

For all these reasons the division of labor results in greater total output from society’s limited human resources.