Chapter Two: Economic Systems

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?