Economic Systems

(Lecture Notes from Mr. Kersey's 7th Grade Geography, History, and Culture Class)


  • There are many variations of economic systems, but really just three basic kinds.
  • An economy is a system for producing, distributing, and consuming goods and services.
  • Producers are owners and workers. They make products, like shoes or cars.
  • Products, like shoes or cars, are called goods.
  • Some products are really services that producers do for others.
  • When you stay at a hotel, eat at a restaurant, or even see a doctor, you are buying a service.
  • Consumers are people who buy and use goods or services.
  • Everyone is a consumer.
  • There are two categories of businesses that produce goods or services.
  • Basic businesses are essential for a nation to function. These include transportation, electricity, or communications.
  • Non-basic businesses or industries produce goods or services that we do not need, like CD's, movies, or skateboards.

Types of Economic Systems

The three basic types of economic systems (that we will learn about) are capitalism, socialism, and communism.

Types of Economic Systems - Capitalism

  • In capitalism, most basic and non-basic businesses are privately owned.
  • Producers sell these goods or services for a profit, or to make money.
  • Consumers are very important to capitalism.
  • Capitalism is a market economy, where decisions are made by individuals acting as buyers and sellers.
  • Countries that are capitalist include the U.S., Japan, or South Africa.

Types of Economic Systems - Socialism

  • In socialism, the government owns and runs the basic industries.
  • The government decides how to run the business and how much to charge for the product.
  • Any profits earned by a state-owned business are used for the public good, like health care.
  • Non-basic businesses are privately owned, like in capitalism.
  • Socialism is a mixed economy, which is a combination of different economic systems.
  • Nations with a socialist economy tend to have higher taxes than countries with a capitalist economic system.
  • Socialist countries include Spain and Italy.

Types of Economic Systems - Communism

  • Under communism, a large central government owns all property and businesses. All people are supposed to own an equal share of everything.
  • The government controls almost everything in a communist country - what jobs people have, how much they earn, how much things cost.
  • In a communist country the government owns the TV stations and newspapers, automobile plants, and even candy factories.
  • Communism is a command economy, where all decisions are made by the central government.
  • There are only a few communist countries today, such as China and Cuba.

Pure Economic Systems

These three types of economic systems do not exist in their "pure" form. In the U.S. the government owns some businesses, and in China, there is some free enterprise, for example.