Understanding Socialism, Communism, and Mixed Economies: Comparison & Analysis

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  • 0:05 Understanding Economic Systems
  • 2:04 Socialism
  • 2:56 Communism
  • 3:25 The Reality - Mixed Economies
  • 4:05 Summary
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Lesson Transcript
Instructor: Shawn Grimsley
Socialism and communism are alternative economic systems to capitalism. In this lesson, you'll learn some of the key concepts behind these economic systems. You'll also learn about mixed economic systems.

Understanding Economic Systems

Meet Marvin, an average citizen who works a nine-to-five job, but dreams of being his own boss. We'll be following Marvin through two economic systems and see how they're different. An economic system is the way a society organizes the production, distribution, and consumption of goods and services to meet people's needs and wants. Basically, economic systems address the following questions:

  • What type of goods and services should be produced?
  • How much should be produced?
  • How should it be produced?
  • For whom should it be produced?

Economic systems can be divided into market economic systems and command systems. In a market economic system, private individuals, like Marvin, own most of the factors of production. These are things like land, labor, and capital that are used to produce goods and services. Marvin also has the right to buy or sell whatever he wants. His decisions are guided by profit, his self-interest, and the resources available to him, like money.

Supporters of market economies believe that everyone acting in their own self-interest results in efficient and productive allocation of resources in an economy. Consequently, under a market economic system, the market determines the types of goods and services that are produced, how much should be produced, how it should be produced, and for whom it should be produced. There is little government intervention in the economy. In fact, the United States is a good example of a market economic system.

Command economic systems are pretty much the opposite of market systems. In a command system, most of the factors of production are publicly owned. Marvin probably doesn't have a very good chance to start his own business in a pure command economic system. Economic decisions are made through central planning by the government. In other words, the government's central planners will determine what gets produced, how much of it gets produced, how it should be produced, and who gets what is produced. The former Soviet Union was a command economy.


Socialism is a type of command economic system. The state owns and controls most of the factors of production, including land and capital goods. The state also engages in central planning. Production of goods and services, as well as their prices and distribution, are centrally controlled by the state. Marvin will have a hard time starting a business in a purely socialistic economic country.

However, socialism does not assert control over people's own labor. The central planners will not dictate where Marvin can work and what he will do. Marvin can work for whom he wants and do the type of work he wants so long as he can get hired. Economies that utilize socialism also tend to have a high-degree of worker participation in management and distribution of wealth is often based on need. Sweden is an example of a country that uses socialism as an economic system.


Communism is another command economic system. In fact, it's probably the ultimate command system because all factors of production are controlled by the state. Marvin will be unable to start his own business because the state owns the land, capital goods, and directs economic activities. Under communism, Marvin doesn't even have a choice where he will work because labor is controlled and directed by government central planning. China is generally considered to have an economic system based on communism.

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