Economic Systems

The function of an economic system

to determine a system how its goods and services are being produced and distributed

The three economic questions

What,How, and Who

What economic goals does a traditional economy pursue?

security and equity

The limitations for a traditional economy

goods and services

What economic goals are associated with a free market?

freedom,efficiency, & growth and innovation

What economic goals aren't associated with a free market?

security and equity

What is the concept of consumer sovereignty?

Consumers encouraging others of what gets produced via the purchases they make

What system has consumer sovereignty?

Market Economies

What system doesn't have consumer sovereignty?

Command Economies

Who described how a market economy functions?

Adam Smith

What did Adam Smith write?

The Wealth of Nations

What the motivating forces in a free market?

self-interest

What are the regulating forces in a free market?

competition

Regulating and motivating forces are working together

the invisble hand

What are the main ideas associated with the phrase 'laisez-faire'?

the governments should have non-interference

What role does specialization play?

increasing economic efficiency

What is another term associated with speacialization?

division of labor

Whose ideas helped inspire the economic goals of command economies?

Karl Marx

In terms of labor, why was the Soviet Union's economy inefficient?

lack of incentives for productivity and innovation

What was guranteed with the Soviet Union's economy?

jobs and wages

What was the result of Soviet policy planners economic decisions on consumers?

Frequent shortages with the consumers food and products

What are some keys ways socialism differs from communism?

goverment owns some resources and production but not all of them

What are some keys ways communism differs from socialism?

government is in complete control of resources and production

How might you describe the modern economies of many northern European countries?

They are social democracies and mostly market-based economies

What are the disadvantages of command economies in terms of economic goals?

economy inefficiency and lack of innovation

What are the disadvantages of the workers during the command economies?

incentive wages and job security

What determines where a country's economy falls on the economic systems continuum?

the level of government control in economic decision making

What types of economies are on opposite ends of the economic systems continuum?

command and market

What are the two examples of countries and cities for each end of the Command Economy?

north korea and cuba

What are the two examples of countries and cities for each end of the Market Economy?

hong kong and singapore

Why would a market economy use some government intervention?

to fix market failures

What can't the market economy do?

education, roads, and justice

Where does the U.S. exist on the economic systems continuum? What can it be called?

mixed market economy

What are some examples of the U.S. utilizing the government within its market-based system?

safety net, regulation, and consumer protection

What does it mean to say China began 'transitioning' it economy forty years ago?

privatization

What is Privatization?

the selling of government property/industires to individuals

What does it mean to say an economy is nationalizing?

the government takeover of private industry

Towards which type of system would it be moving for nationalizing?

command system

Where has there been a transition from market to command?

cuba under castro; venezuela under chavez

What are some difficulties of transitioning to a market based, from a command -based, economy?

job insecurity, inequality, and inflation

Which type of economic system is likely to have a higher GDP per capita?

market economies

What do economists call countries with low standards of living?

LDCs (Less Developed Countries)

What don't they call LDCs?

Third World Countries

What can often be said about economic systems, standards of living and governments in LDCs?

lower standards of living, weak, and corrupt governments

What are some health metrics that allow economists to determine a country's level of development?

infant mortality rate and life expectancy

What are some education metrics that allow economists to determine a country's level of development?

literacy rate and student enrollment

What can you say about human capital as it relates to LDCs?

lower levels of human capital with limited education, traning, and healthcare

Efficiency

making the most of resources

Freedom

free actions from government intervention

Security

protection of society's vulnerable during the times of economic difficulty utilizing some form of social safety net

Innovation and Growth

resources are devoted to research in order to spur development and generate constant economic leading to higher standards of living

Equity

fair, impartial and balanced distribution of opportunity and wealth within a society

1st round of Bead game represents

traditional economy

2nd round of Bead game represents

command economy

3rd round of Bead game represents

market economy

Market Economies

voluntary change and decentrialized decision-making

Command Economies

Centrally planned and have some form of central leadership answer the three economic question

Communism

a pure form of command economy in which the government owns all of the factors of prodiction and makes all economic decisions

Socialism

more open version of command economies in which the government owns some, but not all of them

Market Economies

priotize individual decision-making and the economic goals of freedom, effieciency and innovation/growth, but accept some trade-offs