4. Differences between soviet-style socialism and capitalism

Table 2.1 summarizes how capitalism and Soviet-style socialism solve the three central economic problems what, how, and for whom.

Table 2.1 Capitalism’s and soviet-style socialism’s solutions to the three economic problems

Central economic problem	Capitalism’s solution	Soviet-style Socialism’s solution
What to produce?	What firms believe people want and will make the firm a profit	What central planners планировщик believe socially beneficial
How to produce?	Business people decide how to produce efficiently, guided by their desire to make a profit	Central planners decide guided by what they believe is good for the country (ideally)
For whom to produce?	Distribution according to ability and inherited wealth богатство	Distribution according to individuals need (as determined by central planners)

Welfare благополучный capitalism – an economic system in which the market is allowed to operate but in which government plays dual roles in determining distribution and making the what, how, and for whom decisions.

5. Mixed Economy

Mixed economy is type of economic system, in which governments as well as business firms provide goods and services. In such economies governments supply снабжающие roads, defense, pensions, and schooling обучение directly to citizens. In modern economies governments also commonly intervene вмешиватся in markets to control prices and correct for the shortcomings недостатки of a system in which prices and pursuit преследование of personal gain influence resource use and incomes.

The price system is a mechanism by which resource use in a market economy is guided by prices. In such a system, changes in prices caused by changes in demand спрос and supply запас affect opportunities for profit and personal gain and cause changes in resource use.

Government and the Economy

Fig.2.2 shows how government tits into the circular flow of expenditure расход and income. Governments participate in input markets by purchasing покупая labor services and other productive resources. They also borrow заимствуют funds from credit markets when their expenditures exceed their tax налог revenues доходы. Governments also participate in product markets to purchase the output of business firms. They purchase such goods as paper, aircraft, and machinery, and they contract with construction firms to build roads and structures. The vertical arrows стрелка show how governments participate in markets and provide income to workers, resource owners, and business firms.

The horizontal arrows in Figure 2.2 show how governments tax households and businesses to obtain the necessary funds to purchase products and hire наем input services. The inputs and products are used to provide government goods and services that benefit both households and business firms.

Mixed economy is regulated in micro by planning inside a firm, in macro by government regulation. Government is one of the active members of economic relations.

Mixed economy is socially oriented by function of market and government:

1. social orientation of market – production on desire which grow and change and stabilization and grow of economic factors – way of satisfaction desires;

2. government – grow of costs for human potential (on the level of enterprise and society) – grow of branches of social infrastructure. Government is a social guaranty of stabilization and saving;

3. private property (20% of citizens have stocks хозяйство).

Figure 2.2. The Mixed Economy:

1 – expenditures;

2 – purchases of goods and services;

3 – income: wages, interest, rent, and profit;

4 – resources;

5 – payments;

6 – labor, capital, funds, natural resources, and entrepreneurship;

7 – revenue;доход

8 – supply запас of goods and services;

9 – purchases of goods and services;

10 – expenditures;

11 – income support; поддержка

12 – taxes;

13 – government services;

14 – subsidies;

15 – taxes;

16 – government services;

17 – resources

18 – payments.

Economic functions of government:

1. Providing a legal and social framework. структура

2. Maintaining поддерживать competition within markets.

3. Redistributing income as necessary for equity.

4. Reallocating перераспределять resources.

5. Stabilization of economy.

Main characteristics of mixed economy:

1. property имущество rights are significant значительный because they are encourage способствует investment, innovation, exchange, and economic growth;

2. freedom of enterprise and choice;

3. self-interest;

4. extensive use of technology and capital goods. All advanced industrial economies are based in state-of-the-art technology and the extensive use of capital goods.