Economics Chapter 2

Traditional Economy

An economy based upon customs and tradition

Pros of a traditional economy

Stability and Predictability

Cons of a traditional economy

They resist change

What are the three main questions in economics?

What to produce? How to produce? And for whom to produce?

Command Economy

Government controls everything

Socialism

System where government owns some or all factors of production

Communism

Extreme form of socialism with no private ownership of property

Authoritarian

Requires obedience to system

Karal Marx

A german phikosopher who wrote Das Kapital and The Comunist Manifesto

Market Economy

A pure economy where individuals answer 3 basic questions. What to produce, how to produce, who to produce for

Laissez Faire

The government is not intrested in what is being producedC

Customer Sovereignty

Customers have freedom to choose

What do sellers want?

A profit

Public Transfer Payment

When the government transfers money to those not contributing

Market Economy

Encourages the best use of resources

Advantages of a Market Economy

Economic and political freedom, profit

Disadvantages of a Market Economy

Some people left behind

What was Fredrick Hayeks beliefs on the government

Government shouldn’t go into debt to stimulate growth, Government intervention leads to totalitarianism, free markets, lower taxes

What was John Maynard Keynes beliefs on the government?

Increasing government deficits can stimulate the economy, Lower the interest rates and encourage spending, Government has a role in this economy which is to provide stability, making a comeback lately