Section 1: Answering the 3 Economic Questions

Chapter 2: Economic Systems Study Guide

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Section 1: Answering the 3 Economic Questions

Objectives

1. Identify the 3 key economics questions.

2. Analyze the societal values that determine how a country answers the 3 key ?s.

3. Explain the characteristics of traditional, command, & market economies.

Vocab: factor payments, safety net, standard of living

1. What is an economic system? Essentially, what does one do?

2. What are the 3 key economic questions? 3. Name the 7 main goals of an economic system.

4. Based on the way a society answers the 3 questions & the goals it favors, what are the 4 different types of economic systems? Summarize the characteristics of each.

Section 2: The Free Market

Objectives 1. Explain why markets exist. 2. Analyze a circular flow model of a free market economy. 3. Understand the self-regulating nature of the marketplace. 4. Identify the advantages of a free market economy.

Vocab: specialization, factor market, product market, self-interest, incentive

1. What is a market? Name 3 different markets found in Lewisburg.

2. Why does specialization make an economy more efficient?

3. Adam Smith claimed that everybody always acts in their own self-interest. Do you agree? Why?

Chapter 2: Economic Systems Study Guide

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4. What is consumer sovereignty? How do we all decide what gets produced in our economy?

Section 3: Centrally Planned Economies

Objectives 1. Describe how a centrally planned economy is organized. 2. Analyze the centrally planned economy of the former Soviet Union. 3. Identify the problems of a centrally planned economy.

Vocab: socialism, communism

1. How is a centrally planned economy different from a free market economy? Who answers the 3 key questions in each?

2. What was the focus of the former Soviet Union? What problems did this cause?

3. What are the main problems of all centrally planned economies? Which one is by far the biggest?

Section 4: Modern Economies

Objectives 1. Explain the rise of mixed economic systems. 2. Interpret a circular flow model of a mixed economy. 3. Compare the mixed economies of various nations along a continuum between centrally planned & free market systems.

Vocab: laissez faire, free enterprise, continuum, privatize

1. All economies today are which type? Traditional, free market, centrally planned, or mixed? 2. Adam Smith was a major advocate for laissez faire, yet even he realized that we still needed some

government intervention. Why?

3. In a free enterprise, who owns the capital goods? Government or individuals/businesses? 4. All economies today are mixed, yet they are all different. In what way are they different? Represent

this difference graphically.

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