Economic systems and PPC

What are the three traditional economic systems?

Traditional, Market, and Command.

Economic roles are the same as those of parents and grandparents.

Describe a Traditional economic system.

Describe a Market economic system.

Individual decisions by buyers and sellers in the marketplace determine economic decisions.

Describe a Command economic system.

The government is the main decision-maker.

What is Communism in terms of ownership and decision-making?

Public Ownership of Means of Production. Decisions by government determine economic activity.

What is Socialism in terms of ownership and decision-making?

Public and Private ownership of Means of Production. Decisions by consumers/businesses and government determine economic activity.

What is Capitalism in terms of ownership and decision-making?

Private ownership of means of production. Decisions by consumers and businesses determine economic activity.

What type of economic system do all countries have today?

Mixed Economic Systems. No country is 100% Capitalism, Socialism, or Communism.

What characterizes a market economy (ownership, decision-making)?

Private ownership of the means of production (farms, factories); supply and demand determine prices and allocation. Examples: USA, Hong Kong, Germany.

What characterizes a command economy (ownership, decision-making)?

Government (central) control/ownership of the means of production; central authority sets prices and makes most allocation decisions. Examples: North Korea, Cuba.

What characterizes a developing economy?

One that is not yet industrialized but is developing. Examples: Chad, Ecuador, Bangladesh.

What is a key difference in the role of government between market-oriented and command nations?

The government sector generally plays a larger role in command nations.

What challenge do developing nations often face regarding industrialization?

They often lack the resources necessary for industrialization and must seek aid or investment.

What is an important concept related to the global economy today?

The interdependence of all nations.

What causes a Production Possibilities Curve (PPC) to shift?

A change in resources or a change in technology.

What are the PPC Shifters?

Change in the quantity or quality of resources, Change in technology, Specialization and Trade.

How can Specialization and Trade affect the PPC?

Trade allows countries to consume beyond their own production possibilities.

What is a Consumer Good?

Products created for direct consumption (e.g., pizza).

What is a Capital Good?

Products that create consumer goods (e.g., oven, tools, machinery).

Investments

amount spent by business on productive resources and purchases of new homes by consumer. new machines, new factories, research, increase in inventories, and government expenditures. (I)

Government

amount spent on federal, state, and local government provided goods and services (G)

Net exports

Exports - imports (X-M)

Consumption

Amount of goods and services purchased by households. (C)

GDP equation

C+I+G+X-M (consumption + investment + government + exports - imports)

What is not included in GDP

Intermediate goods, used goods, black market, financial transactions, household production, transfer payments

What GDP does not tell us

does not measure income distribution, non monetary output/transactions, desirable externalities (pleasure/environment), social well being, and is not a standard of living

Investmentss for households

Mortgage (brand new homes)

X axis

product 2

Y axis

product 1

Feasible

inside the curve

Feasible + efficient

on the curve

Feasible + inneficent

Outside the curve

Transfer payments

Social security, pensions, welfare snap (government assistance), unemployment insurance, educational grants