Economic Systems + Transitioning to Capitalism

Three questions every society must answer

What to produce? How to produce? For whom to produce?

Economic System

the method used by a society to produce and distribute goods and services

Traditional Economy

The use of scarce resources, and nearly all other economic activity comes from ritual, habit, or custom.

Can you achieve a "want" in a traditional economy?

no

How are roles defined in a traditional economy?

by their elders or ancestors

Command Economy

A central authority is the primary economic decision maker, answering the WHAT, HOW, and FOR WHOM

A central authority in a command economy is usually….

a king, dictator, president, or government body

True or False: in a command economy, the people owns the resources as well as controls the prices and supplies

false

Who is in charge of a command economy?

government

Market Economy

characterized by a great deal of freedom. People spend money on what they want most, which tells producers what to produce.

Market

a place where buyers and sellers interact to determine price and quantity of goods and services

What helps people make the what, how, and whom decisions in a market economy?

supply and demand as well as price system

Capitalism

economic system in which private citizens own and use the factors of production for their own profit/gain

What is the difference between a free market and capitalism?

Free market refers to exchange of goods/services. Capitalism refers to private ownership of resources.

What groups typically rely on a traditional economy?

indigenous people

Central African Mbuti, Australian Aborigines, Inuit of Alaska & Canada

tribes that use traditional economy

This advantage is corellated to the ___ economy: Everyone knows what role to play - no uncertainty over WHAT or HOW to produce

traditional

This advantage is corellated to the ___ economy: Stable, predictable, and continuous life

traditional

What answers the what, how, and whom questions in a traditional economy?

customs and traditions

This disadvantages is corellated to the ___ economy: Discourages new ideas, technological advances

traditional

This disadvantages is corellated to the ___ economy: Less progress leads to economic stagnation

traditional

Which economic system has the lowest standard of living?

traditional

North Korea, Cuba, Venezuela, USSR, former East Germany

examples of command economy

How are resources allocated in a command economy?

gov't decides

___ can change direction quickly - central planners can shift resources to prioritize growth in certain areas

command economies

In a command economy, people can recieve ___ for little to no cost.

basic needs

In a command economy, certain disadvantages include…

corruption, loss of individual freedom, does not meet the wants or needs of consumers, no incentive

Goods from a command economy are usually…

low quality

Who is in charge of a market economy?

the people

How are resources allocated in a market economy?

by purchase (who can afford good/service/resource)

A market economy has a high degree of…

individual freedom

True or False: a market economy can adjust to change

true

There is a ___ government interference in a market economy, meaning that the desision making is ___.

low; decentralized

Who is at a disadvantage in a market economy?

old, sick, or injured people

A market economy ONLY rewards…

productive resources

True or False: in a market economy, there is a big incentive to create public goods

false

Competition drives ___ for workers and businesses

uncertainty

Australia, Canada, Great Britain, US, Japan, Singapore, South Korea

examples of a market economy

The three main types of economic systems are…

command, traditional, market

No country has a 100% ___ economy.

market

Mixed economy

economic system that has some elements of traditional, command, and market economies

Why do mixed economies exist?

other three econ systems are extreme, economic stress -> change, nations borrow ideas from each other to solve problems (e.g. poverty)

What is the most popular economic system?

mixed economy

China, Singapore, Sweden

mixed market economies

This advantage is corellated to the ___ economy: Borrow the "best" characteristics of other systems to solve problems

mixed

What provides more services to consumers: command economy or mixed economy

mixed economy

Mixed economies often result in…

higher taxes to cover the costs of programs

Mixed economies often result in…

higher taxes

In a mixed economy, general welfare services can lead to shifting resources away from…

other important projects

Why are communist countries shifting toward capitalism?

Capitalism is a powerful engine for generating wealth

Capitalism

A type of Market Economy

Capitalism Examples

United States, Canada, Great Britain, Japan, South Korea

Communism

A type of Command Economy

Communism Examples

Cuba, China, USSR

Socialism

A type of Command Economy

Socialism Examples

Venezuela, Vietnam, Sweden, Norway, Denmark

In capitalism, who owns the factors of production for their profit or gain?

common people

___ encourage investment and innovation

private property rights

What can capitalism lead to?

income inequality

Communism is a…

theoretical ideology

True or False: communism is a classless society, with no government

true

Who owns the factors of production in communism?

the community

In a communist society, all contribute according to ___ and consume according to ___.

ability; their needs

Are there no private properties in a communist society?

no

In a socialist economy, all production and distribution decisions are made by the…

government

In a socialist economy, the government ___ from food to healthcare

supplies everything

True or False: In a socialist economy, production is used for profit.

false

Today, there are very few "pure" ___ economies. Many ___ economies "borrow" some aspects of ___ economies.

socialist; market; socialist

What drives economic growth, improved standard of living, and quality of life in a market economy?

self-motivation (invisible hand)

GDP per Capita

Economic output per person in a country

What is one measure for standard of living that economists use?

GDP per Capita

Economies with the ___ GDP per capita are almost all ___

highest; capitalist

In a connected world, people are aware of the wealth that capitalism can ___, and demand it of their leaders.

generate wealth

Privatization

The conversion of state-owned factories, resources, and property to private owners

Vouchers

Some countries create certificates that are issued to the citizens that allow them to purchase government-owned property

What is the key feature of Capitalism?

ownership of private property.

How does a government transition to capitalism?

they need to decide how to transfer ownership of the factors of production to the people.

Problems of transition - Loss of Political Power

Political leaders often struggle with giving up their power to entrepreneurs and property owners

Problems of transition - New Incentives

People need to learn to make their own decisions, employees need to work harder to keep jobs and get paid more

Problems of transition - Underestimating The Costs

Capitalist economies are less stable, and have periods of high unemployment, income inequality

True or False: U.S. is shifting back into the communist economy

true

What is an example of the U.S. shifting back to communism?

purchased a stake in the semiconductor producing company “Intel”

Isolationism

when an economy blocks off trade

North Korea

example of isolationism  

Almish

example of a traditional economy in the U.S. (group of people in PA)

perestroika

restructuring of soviet economy + transition into capitalism