The Role of Government in Economic Systems

Foundations of
Government

The Role of Government in Economic Systems

What is the role of
government in different
types of economic
systems?

Fundamentals of
Economics

What are the basic factors of every
economy?

●Economics- the study of how people and
nations use their limited resources to
attempt to satisfy wants and needs

●Governments play key roles in economies,
and every economy has producers,
distributors, consumers, labor, resources, capital, and entrepreneurs.

●Economic systems are classified either by
how the economies work or by the
political ideology that is connected to the
economy.

Capitalism

What are the goals of capitalism?

●Capitalism is an economic system that
emphasizes freedom of choice and
individual incentive.

●The goal of capitalism is to create a free
market where buyers and sellers are
free to make their economic decisions.

●Competition plays a key role in
capitalism because sellers compete over
resources to produce goods and
services at the best price.

●Pure capitalism has five characteristics:
private ownership and control of
property and economic resources, free
enterprise, competition, freedom of
choice, and the possibility of profits.

Adam Smith, in his work The Wealth of
Nations, advocated a hands-off policy that
would allow market forces to guide the economy
for the best possible outcome.

Multiple Choice

In a pure capitalist system, which of the following could occur?

• An unsuccessful business could receive governmental support.

• Certain products could be banned based on social values.

• Endangered species could be incorporated into products.

• Government food inspections could prevent the spread of disease.

Mixed Economies

What are mixed economies?

●Mixed economies combine elements of
capitalism and socialism.

●Sometimes, a country can shift from one
type of economy to another.

●The economic system of the United States
has shifted as the federal government has
grown, has become more involved in
regulating industries, and has created
programs to provide basic economic
security.

Socialism

What are the goals of socialism?

●Socialism- an economic system in which
government plays a major role in the economy.

●Under socialism, the government determines the
use of resources, distributes products and wages,
and provides social services for its people.

●Democratic socialists believe in political
democracy but want government to regulate the
distribution of wealth.

●Under democratic socialism, citizens have basic
democratic rights, but the government makes
economic decisions and may own key industries.

Communism, a
Command
Economy

How does a command economy work?

●Under communism, government decides how much to
produce, what to produce, and how to distribute goods
and services.

●A communist system is called a command economy
because government makes the decisions for the
nation.

●In a purely communist country, there is no private
property—the state owns the land, natural resources,
industry, banks, and transportation facilities and also
controls mass communication.

●Most communist nations vary in how much of the
economy is state-controlled, and the government’s
role in the economy can change over time.

Karl Marx predicted a worker revolution that
would destroy capitalism and bring about
communism, an economic system where a one
class owns all property in common.

Multiple Choice

Karl Marx envisioned a state where communism would be the end result. How was Marx’s vision of

communism different from the communism that exists today?

• In current communist countries, the people live in a classless agricultural society.

• In current communist countries, the people share power with the government.

• In the vision of communism, eventually no economic system would be needed.

• In the vision of communism, property would collectively belong to the people.

Capitalism, socialism, and communism are the
three major types of economic systems. With
each system, the government takes a different
role in the economy.

What is the role
of government
in different
types of
economic
systems?