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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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