Economics - Krizan Classroom Website



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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