Page 72 - Business Principles and Management

Chapter 3 • Economic Environment of Business

Types of Economic-Political Systems

Each country has an economic system and a political system. The political sys-
tem nearly always determines the economic system. Because the two systems
cannot be separated, we refer to them as an economic-political system.
The importance of the individual citizen has always been emphasized in the
United States. Therefore, the United States developed an economic-political system
that permits a great deal of individual freedom. History tells us that there is a rela-
tionship between political and economic freedom; that is, political freedom usually
is found in countries where individuals and businesses have economic freedom.
And political freedom is quite limited in countries that do not give people and
organizations much economic freedom.
All economic-political systems are forms of three basic types: capitalism, social-
ism, and communism. As you read about these three economic-political systems,
compare their features as shown in Figure 3-2.

FIGURE 3-2 Three main economic-political systems exist throughout
the world.

Comparison of Economic-Political Systems
CAPITALISM SOCIALISM COMMUNISM

Market/ Mixed Command/
Mixed Economy Mixed
Economy Economy
Who may own Businesses Government Government
natural resources and for some, for most
and capital goods? individuals but not all

How are By customers By government By government
resources allocated? based on for some and only
competition customers for
others

To what extent Limited Extensive over Extensive
does government the allocation of
attempt to control some resources,
business decisions? but little over
distribution
How are marketing By market By market By government
decisions made? conditions conditions

What one country United States Sweden North Korea
is a good
example of this
economic system?

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