http://home.comcast.net/~diazstudents/eco
nomics_studyguides.htm
ECONOMICS
A must know situation…
It is determined that
Every Economic System

Asks 3 questions:
 What to Produce
 What resources do we use to meet societies
needs
 What to produce and how much to produce
 When an economic system chooses to use a
resource for one purpose and gives up the
opportunity to use it for some other purpose,
What is the COST?
Economic Questions
 How
to Produce
 Who
will produce
 What methods will be used
 Quality of items
 How
to Distribute
 Countries
cannot produce everything that society wants
 They find a way of determining who gets the goods and
services and who doesn’t
SO…
ECONOMICS
A must know situation…
An Economic system

Is a set of rules which nations decide
how to distribute its Resources to
satisfy it’s people’s wants/needs
Traditional Economy


Definition: Economy is based on custom and
tradition
Characteristics:
 Resources
allocated by inheritance
 Strong social network
 Indigenous (original/native) technology and method
 Every member of society has a purpose
 Agricultural
 Bartering is a common practice
Traditional Economy

Advantages
 Lack
of over consumption
 Less demand on resources-goods only produce if
needed
 Cultural network

Disadvantages
 Limited
variety of goods produced
 Not advanced in technology
Traditional Economy
Command Economy


Definition: A central authority makes the key
economic decisions
Two types:
 Socialism
and Communism
 Difference is mainly in the level of government
control
Socialism

States owns major resources and makes the key economic
decisions

Some forms of private enterprise


Advantages




Individuals allowed to own some businesses
More equal standard of living (In Theory)
The State takes care of major needs (ie: health care/education)
Individuals may start/own their own business
Disadvantages


Choices limited…because of
Limited incentive to produce better products because prices are
fixed
Communism





Strong command economy
State makes all the economic decisions
State controls resources for the common good
State decides what to produce, how much to produce , and
how to distribute
Advantages




More equal standard of living
Less crime and poverty (In Theory)
State provided jobs, place to live and healthcare
Disadvantages


Little choices of what to buy
Highly skilled workers not rewarded
Communism
Market Economy



Definition: Economic decisions made in the marketplace
according to the laws of supply and demand
Goal: To allow an unrestricted exchange of goods and
freedom of choice
Characteristics
Interaction between Business & Consumers determine the
demand for items
 Producers influenced to supply goods or services by the
prices in the markets – to make a profit
 Resources are privately owned
 U.S. Government’s role is to support the marketplace by
removing obstacles to trade

Market Economy

Advantages
Free choice
 Incentives to produce
 Variety of goods and services
 Opportunities for entrepreneurship & reward skilled
workers


Disadvantages
Can have large inequities in wealth
 Higher crime and poverty
 No guarantee for basic needs

Market Economy
Mixed Economy

Definition: Combination of a market and command
economy
State takes care of people’s needs – especially low income
 Marketplace takes care of people’s wants


Three ways the U.S. shows command economy influences:
Government regulation of businesses, i.e. AntiTrust, Control
banks, etc.
 Government provides for education and defense
 Provide Social welfare systems - such as Medicare and
Medicaid
