Section Summary

Economy refers to the social institution through which a society’s resources (goods and services) are managed. The Agricultural Revolution led to development of the first economies that were based on trading goods. Mechanization of the manufacturing process led to the Industrial Revolution and gave rise to two major competing economic systems. Under capitalism, private owners invest their capital and that of others to produce goods and services they can sell in an open market. Prices and wages are set by supply and demand and competition. Under socialism, the means of production is commonly owned, and the economy is controlled centrally by government. Several countries’ economies exhibit a mix of both systems. Convergence theory seeks to explain the correlation between a country’s level of development and changes in its economic structure.

Globalization refers to the process of integrating governments, cultures, and financial markets through international trade into a single world market. There are benefits and drawbacks to globalization. Often the countries that fare the worst are those that depend on natural resource extraction for their wealth. Many critics fear globalization gives too much power to multinational corporations and that political decisions are influenced by these major financial players.

The job market in the United States is meant to be a meritocracy that creates social stratifications based on individual achievement. Economic forces, such as outsourcing and automation, are polarizing the workforce, with most job opportunities being either low-level, low-paying manual jobs or high-level, high-paying jobs based on abstract skills. Women's role in the workforce has increased, although women have not yet achieved full equality. Immigrants play an important role in the U.S. labor market. The changing economy has forced more people into poverty even if they are working. Welfare, Social Security, and other social programs exist to protect people from the worst effects of poverty.