Economics: Today and Tomorrow © 2008

Chapter 2: Economic Systems and the American Economy

Chapter Overviews

Section 1: Economic Systems
The way a nation determines how to use its resources to satisfy its people’s needs and wants is called an economic system. Each type of system is labeled according to how it answers the basic economic questions of WHAT, HOW, and FOR WHOM to produce. The major economic systems in use today are traditional, command, market, and mixed.

Section 2: Characteristics of the American Economy
An ideal economic system is called capitalism, another name for the market system. This system has limited government involvement and allows the people to make their own economic decisions, also called a laissez-faire system. The American economy, a market system, is examined in detail, including its characteristics and goals and the meaning of free enterprise and free choice. The roles of profit incentive, competition, and private property in the marketplace all influence the American economy.

Section 3: The Goals of the Nation
A nation's values and goals influence its choice of economic systems. The national economic goals of the United States and the advantages of the American free enterprise system are explained according to freedom, efficiency, equity, security, stability and growth. A discussion of the economic responsibilities of individuals in a free enterprise system is provided.

Section 4: Capitalism and Socialism
Contrary to capitalism, socialism is an economic system that allows the state to own all the factors of production, such as big factories. The main benefits of capitalism are economic efficiency and individual freedom.