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58 Terms
1
What are the three fundamental questions of production?
What to Produce? How to Produce? For Whom to Produce?
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2
Economic System
The set of laws, institutions, and common practices that help a nation determine how to use its scarce resources to satisfy as many of its people's needs and wants as possible.
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3
Command Economy
An economic system where all production decisions are made by a small group of political leaders and the state determines how resources are allocated.
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4
Central Planning
A system where state authorities draw up plans to meet individual needs such as food, housing, medicine, and education.
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5
What is the role of the individual in a command economy?
The individual has the obligation to serve the state and is rewarded with a share of goods and services.
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6
Capital Goods
Goods that increase the economy’s ability to produce more in the future.
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7
Market Economy
An economic system where activity is coordinated by many individuals making independent decisions in a free marketplace.
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8
What is another name for Market Economy?
Free-Enterprise.
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9
How are decisions made in a Market Economy?
Decisions are made based on consumer demand and self-interest.
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10
What determines what to produce in a Market Economy?
Consumer demand determines what to produce.
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11
How to produce in a Market Economy?
Profit determines how goods and services will be produced.
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12
What determines for whom goods are produced in a Market Economy?
Distribution is determined by the income people receive for their contributions to the production process.
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13
Basic Elements of Market Economy
Private property, freedom of enterprise, profit maximization, and competition.
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14
Government's role in Market Economy
To provide law and order, and assist in economic development.
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15
Advantages of Pure Market Economy
Efficient output, incentives for entrepreneurs, consumer freedom.
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Disadvantages of Pure Market Economy
Public does not choose socially efficient output, exploitation of factors of production, income distribution disparities.
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Advantages of Pure Command Economy
Logical choices of output, fairer distribution of income, no unemployment.
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18
Disadvantages of Pure Command Economy
Inefficient production, poor quality of goods, potential for political power abuses.
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19
What is the primary goal of a command economy?
To meet the needs of the state as determined by the central authority.
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20
Characteristics of Market Economy
Private ownership, freedom to compete, method of production chosen by individual producers.
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21
In a command economy, what is determined by central authority?
What goods to produce, how they will be produced and who will work where.
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22
What incentivizes productivity in a command economy?
A system of reward and punishment.
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23
What type of goods are emphasized in a command economy?
Capital goods, to increase future production capabilities.
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24
What can lead to exploitation in a market economy?
Unfair competition and income distribution disparities.
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25
What happens to inefficiency in a market economy?
Inefficiency will not compete or survive.
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26
In a market economy, how are resources owned?
Resources are privately owned.
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27
What is the significance of profit in a market economy?
It determines how resources are allocated and incentivizes efficient production.
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28
What does private property allow individuals to do in a market economy?
It allows individuals the right to own goods and compete in business.
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29
What does the government avoid in a pure market economy?
Government involvement in business activities.
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30
What is a key feature of command economies regarding employment?
Jobs are assigned by the government.
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31
Why is central planning considered 'more efficient'?
It prevents strikes and unemployment.
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32
What is a potential negative effect of public ownership in command economies?
Lack of consumer choice and incentives.
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33
What can result from minor roles of price mechanisms in command economies?
Possible black markets.
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34
What is the concern regarding military spending in a command economy?
Resources may be allocated inefficiently away from consumer goods.
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35
What is required for a productive economy according to economic systems?
A balance in addressing the three fundamental questions of production.
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36
How does consumer choice affect production in a market economy?
Producers create goods that are in demand by consumers.
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37
What is the primary objective of a market economy?
Maximization of profits through efficient resource allocation.
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38
In a market economy, what can high-income individuals do?
Afford more national output compared to those with low incomes.
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39
What happens to goods that do not fetch high prices?
Businesses typically do not produce those goods.
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40
What does competition drive in a market economy?
Innovation and efficiency among producers.
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41
How are wages determined in a market economy?
Based on the productivity and contributions of individuals to the production process.
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42
What role does government play in a pure command economy?
It centrally plans and controls the economy to meet the state's needs.
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43
What typically happens to the quality of goods produced in command economies?
Often low quality due to lack of competition.
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44
How does the income of individuals affect goods' distribution in a market economy?
Higher income leads to a greater share of goods and services.
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45
What type of investment is common in command economies?
Public investment rather than private.
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What happens to an efficient producer in a market economy?
They thrive and gain profits.
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47
Why is consumer freedom highlighted as an advantage of market economies?
It allows consumers to make choices that reflect their preferences.
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48
What is one possible outcome of command economies being structured around central authority decisions?
Limited choice for consumers.
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49
What does a market system allow regarding employment?
Individuals can choose their job conditions.
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50
How does a command economy typically handle income distribution?
It aims for more equitable distribution than market economies.
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51
What is the purpose of establishing economic systems?
To effectively allocate scarce resources.
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52
What is one of the reasons businesses focus on producing goods with high demand?
To maximize profits and ensure survival in the market.
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53
Describe the political implications of command economies.
Potential for abuse of power by state authorities.
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54
What element of market economies encourages new business ventures?
Incentives for profit maximization.
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55
What is a criticism often leveled at purely market economies?
They can lead to significant income inequality.
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56
What role does consumer choice play in market production?
It directly influences what products are developed and sold.
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What key concept differentiates a market economy from a command economy?
The extent of government control over production and resource allocation.
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58
In the context of economic systems, what does 'scarcity' refer to?
Limited resources available to meet unlimited wants.
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