Economic Systems 7 Flashcards
What is an economic system
the way economic activities are organised
who are the 3 main role players in each economic system
- State
- Employers
- Employees
What are the 3 main types of economic systems
- Capitalist
- Communist
- Socialist
Describe each of the economic systems
- Capitalist
Referred to as a FREE MARKET economy. In this system, people with money can buy homes, farms or any business. PRIVATE OWNERSHIP is permitted. People can buy what they want if they have the money. NEEDS + WANTS drive the state of the economy. When there is a demand businesses will attempt to satisfy.
In this system the RICH BECOME RICHER and the POOR BECOME POORER
- Communist
As result of widening gap between rich and poor in 19 Cent a philosopher named Karl Marx said that existing system was unfair. He said workers were exploited by business owners who then became wealthy. He proposed that system would be fairer if all industry + farms were owned by THE STATE and all workers should share profits equally. Government would supply education, health services as well as social benefits like pensions for all workers.
This system is referred to a a PLANNED Economy.
(Read Pg 2 in booklet)
- Socialist
Because of shortcomings of both systems, third system was introduced. In this there is attempt to include best of each of the aforementioned systems. Country’s main industries + resources are owned by THE STATE, while private ownership is still permitted.
READ P 4 ON COMPARISON OF THREE SYSTEMS!
Would countries always stick to 1 system.
No, there could also be a combination of systems. The countries wouldn’t stick to 1 system, they will select what they believe to be best points of each system.
Describe trade unions and their purpose
Purpose:
Because inequalities exist between workers and employer (both state + private), there are often disputes over pay + conditions of service. Workers want to receive as much as possible for least effort. But employers make increasing demands on employees. Originally, when worker had dispute with management, he negotiated with management. If management weren’t sympathetic to his demands / grievances, there was a danger he could loose his job. This is why trade unions were formed.
What is it:
an organisation that workers can join that negotiates for improved conditions of service + better pay with management for members. Should dispute arise between 2 parties, strike may be instituted. to join union worker would complete application form and thereafter pay monthly subscription.
What is COSATU and how does it benefit SA workers.
COSATU
The Congress of South African Trade Unions is made up of many trade unions involved in all sectors society. Due to this COSATU has very large membership. When strike is called in a particular of society, COSATU can ask other member unions to join the strike. A COSATU generated strike can devastate an economy.
What are the advantages and disadvantages of each system?
Capitalism:
Advantages:
- hard work is rewarded
- freedom of choice. choice of jobs of what you wish to sell or buy
- free competition
- competition leads to improvement
- you have the right to strike. strikes can lead to improvement in pay and conditions of services
- people can start their own businesses
Disadvantages:
- high unemployment
- large gap between rich and poor
- high crime rates
- strikes can be counter productive
- need for pension funding
- high medical costs
Communism:
Advantages:
- low unemployment as state provides jobs for all
- no gap between wealth of people, leads to lest theft
- essential services are funded by state
- free hospitalisation and medical treatment
- no need for pension funding as the state cares for the aged. schooling provided free of charge to all
- state provides public transport
- no disruptive strikes
- no taxation
Disadvantages:
- no freedom to choose own jobs
- profit motive is prohibited - no reward for hard work
- top facilities + service are not of same standard as in Capitalist societies
- no private ownership of resources or businesses
- no private education
- secret state police control population. harsh punishments dished out
- human rights violations
- people may not question authorities
- people often wish to defect (leave country)
- no freedom of press
Socialism:
Advantages:
- combination of state and private control of business exists
- small gap between wealth of people
- essential services funded by state
- free hospitalisation and medical treatment in the state sector
- no need for pension funding as state cares for aged. schooling provide free of charge
- state provides public transport
- limited strikes
Disadvantages:
- salaries as not high as in Capitalist countries
- top facilities and services are not of the standard as in Capitalist societies
- secret state police control population. harsh punishments dished out
- human rights violations
- people may not question authorities
- people often wish to defect
- no freedom of press
