Economics
Economics
Chapter Two: Economic Systems
Types of Economic Systems
1. _______________
2. _______________
3. _______________
There are no countries with these actual systems, all have a __________of some kind
Traditional Economy
• Families or tribes make economic decisions based on __________ and ____________.
• Based on ____________and customs handed down through the generations
• One goal is simply to ___________ and everyone has a role in meeting this goal
• The good of the group always is put ___________ individual preference
• Sometimes found within another economy as a ___________ society (Amish, tribes in South America and Africa, etc.)
Command Economy
• The ___________decides what goods and services to produce, how this will be done and who will get them
• Government makes these decisions based on their _____________ rather than citizen preference
• Government often owns means of production – ___________________ and factories
• North Korea and ________ are closest to this type of economy
Market Economy
• _______________ makes the economic decisions
• Consumers spend ________ the way they wish, enter into business, _____ their labor
• Producers _________ what to produce and how to use their resources to make the most money possible
• Individual act in their own ______________ which, in theory, benefits others (Adam Smith’s theory)
Characteristics of a Traditional Economy
Advantages: It clearly _________ the three economic questions; Produces what is best to ensure the _____________of the society with little disagreement over goals and roles
Disadvantages: Resistant to _________, less _____________ than other economies, often no personal preference about role they play or use of _______________ of the individual, no development of _______so standard of living is lower
Characteristics of a Command Economy
__________ planned economy – leaders decide specifics such as wages, who gets those wages and how they are spent (What businesses can operate in your town; What these businesses would ________ and how much; _______would work in these businesses and how much each of them would ______)
Problems:
• _______________ preferences are not often taken into consideration
• Development is often limited to ___________ areas (former Soviet Union – space travel; North Korea – weapons and arts)
• Lack of ______________ (may even be restricted)
Problems with Command
• ______________ preferences are not often taken into consideration
• Development is often limited to __________ areas
• former Soviet Union – _______travel
• North Korea – __________ and arts
• Lack of ______________ (may even be restricted)
Characteristics of PURE Market
• No _____________ regulation or involvement
• Based only on _______/demand
• Right to own property and make a_________
• Right to __________ wealth
Disadvantages of Pure Market
• No Government controls
• _________ and corruption are not limited
• ______________concerns are not addressed
• Working conditions and __________ pay are not priority
• No way to provide public _________to those who cannot get them on their own
• Tends to be a _____ in standard of living – “class” system can develop
Mixed Economies
• Authoritarian Socialism
• _______________
• Democratic Socialism
• Socialism with citizen input
• _______________
• Market with government control – the more control the government has, the closer it moves to socialism
Authoritarian Socialism
• ___________ to the pure command model
• Often called _____________
• Government __________all factors
• Government often develops a long term plan for how ___________ are used and production is distributed - Cuba
• May have a ____________government - North Korea
• May have elements of _______ types of economies - China
• ________________ answers the three questions (central planning)
• Often a _________ or religious authority
• People have ______ or no say in their economic lives
Examples:
North Korea (__________ to pure command): Some areas in Africa (tribal leaders); _________ nations; China
Problems with Authoritarian Socialism
• Technological advancements are not encouraged except in the ________ areas (former Soviet Union and _________travel)
• All resources tend to be ______________in one area (North Korea – military related production)
• Human rights are often _____ a priority (worker rights, reproductive rights, family choices, etc)
Democratic Socialism
• _____of market and command
• Government owns _______ factors of production
• Often ___________ to utilities, telephone networks and natural resources
• Control of these factors are often influenced by individuals through democratic ____________
• May include a _________
Examples of Democratic Socialism in the United States
• Control of banking industry through __________________
• Infrastructure (bridges, roads, etc)
• Military
• ______________
• Police and Fire protection
• Public Libraries
• _________________ and Social Welfare Systems
Other Democratic Socialism Countries
Sweden, Poland, __________, Angola, Mozambique, Tanzania, _____________ (although also strong Capitalism)
Capitalism
• ___________ to Market
• Individuals own the factors of production and answer the _________questions
• Government does ___________ to prevent “market inequalities” such as:
• Environmental Protection
• Working Conditions and ________ rates
• Product Safety
Problems with Capitalism
• Tends to favor _____________over worker
• Political _____________ over amount of government regulation (a key difference between Republicans and Democrats in our country)
• Regulation limits corporate _________
Examples of Capitalism
United States,___________, Mexico, Japan
All of these have ______________ of Democratic Socialism – education, medical care (except US), natural resource management, etc.
Market Economies (Capitalism) - Fundamentals
• Right to _______property
• _____________government involvement – does not mean NO involvement – means government only steps in when and where necessary (example: economic crisis)
• Voluntary exchange – buying and selling occurs because ________parties benefit
• Specialization and Markets – people ________________ their efforts in the areas they do best (advantages)
• Competition and Consumer Sovereignty – consumers are free to _______________ what they want (ultimate control over what is produced)
Circular Flow of Free Market
• Example – page 53
• A circular flow model shows how the ____________ sectors relate to one another
• The free market model shows ______________ between us (households) and businesses
• This is divided into product market and ___________ market
Factors Market
• Households sell their _____________ (particularly labor and entrepreneurship to businesses.)
• In exchange for the resources, businesses pay ___________ to households
Product Market
• Businesses ______ goods and services to households
• Households send payments for goods and services to ____________.
• consumer spending and business revenue
Trends in Modern Economies
• Changes in ownership
• Moving toward a ____________or Capitalistic system often leads to privatization of resources (former Soviet Union)
• Moving toward ____________ or Authoritarian Socialism often leads to nationalization of resources (Venezuela)
• Economies are becoming more _________ in trade, business ownership, sharing of research and development expenses, etc
What type of economy do you have and WHY
• Who owns and controls the natural and capital resources?
• How are workers paid and how much independence do they have
• Private ownership of businesses?
• Elected Government in true elections?
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