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PERFECT COMPETITION AND SHORT-RUN SUPPLY CURVE: A perfectly competitive firm's supply curve is that portion of its' marginal cost curve that lies above the minimum of the average variable cost curve. A perfectly competitive firm maximizes profit by producing the quantity of output that equates price and marginal cost. As such, the firm moves along it's marginal cost curve in response to alternative prices. Because the marginal cost curve is positively sloped due to the law of diminishing marginal returns, the firm's supply curve is also positively sloped.
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                           ECONOMIC SYSTEM: The assorted institutions that society uses to answer the three basic questions of allocation and address the fundamental problem of scarcity. Another, more popular term for economic system is economy. An economy, or economic system, is the structural framework in which households, businesses, and governments undertake the production and consumption decisions that allocate limited resources to satisfy unlimited wants and needs. An economic system is primarily characterized by its key institutions, especially those relating to the ownership and control of resources and the means of production. Two real-world economic systems that differ based on key institutions are capitalism and communism. Capitalism is an economic system in which ownership and control is largely in private hands (businesses and households), as opposed to public hands (government). One of the key institutions underlying capitalism is private property rights. Communism, in contrast, is an economic system in which ownership and control predominately rests with government. Socialism is a third noted economic system that borrows institutions from both capitalism and communism. CapitalismCapitalism is undoubtedly at the top of any list of economic systems operating in the modern world. This system is based on: (1) private property--private ownership of resources and the means of production, (2) individual liberty--relative freedom on the part of the resource owners to use their resources as they see fit, and (3) competitive markets--a system of relatively competitive markets.Under capitalism, governments establish the basic rules of the game and are responsible for the production of public goods, but the vast majority of resource allocation decisions are undertaken by individuals, as either consumers or producers. The United States is one of the more noted examples of capitalism. However, most modern industrialized economies of Europe, Asia, North America, and South America operate under capitalism. CommunismIn theory, communism is an economic system based on: (1) a classless society, (2) common ownership of resources, (3) no government, and (4) income distributed according to needs. As practiced in the real world, communism is an economic system based on (1) government ownership--government ownership and control of most resources and the means of production and (2) central planning--excruciatingly detailed and comprehensive resource allocation decision making by the central government.Under real world communism, governments undertake the vast majority of the resource allocation decisions, with few decisions undertaken by individuals. The former Soviet Union was the primary example of real world communism before if disbanded in the late 1980s. China, Cuba, and a scattering of African nations continue to operate under various forms of communism. SocialismIn theory, socialism is the transition between capitalism and communism and is based on: (1) government ownership of resources and the means of production, (2) worker control of government, and (3) income distributed according to needs. As practiced in the real world, socialism is an economic system based on (1) nationalized industries--government ownership and control of key industries and (2) central planning--relatively detailed, but not comprehensive, resource allocation decision making by the central government.Under real world socialism, governments exert extensive control over resource allocation decisions, primarily involving key industries such as transportation, energy production, communication, and health care. While Sweden exemplifies modern socialism, several European nations have practiced varying forms of socialism over the decades. Two Pure ExtremesCapitalism, communism, and socialism are three real-world economic systems that exhibit varying degrees of decision making by individuals and governments and are part of a continuum bounded by two theoretical extremes--pure market economy and pure command economy.- Pure market economy: An idealized economy that relies exclusively on decisions made through markets to allocate resources.
- Pure command economy: An economy that relies exclusively on decisions by governments to allocate resources.
Neither type of economic system currently exists in the world, nor has either EVER existed. Both ideals are best considered benchmarks that can be used for comparison. The key word that makes each a theoretical extreme is "exclusively." Real world economic systems rely on both markets and governments to allocation resources. While some real world economic systems come close to one extreme or the other, they never actually reach the ideal.
Recommended Citation:ECONOMIC SYSTEM, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2025. [Accessed: July 13, 2025].
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In the early 1900s around 300 automobile companies operated in the United States.
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"To sit back and let fate play its hand out, and never influence it, is not the way man was meant to operate." -- John Glenn, astronaut, U.S. senator
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WPO
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