econ systems Flashcards
collectivization
soviet policy where the peasantry were forced to give uo their individual farms and join large collective farms
dekulkization
soviet campaign of political repressions, including arrests, deportations, or executions of millions of kulaks
three types of economic systems
centrally planned (command)economy
free market economy
mixed economy
command economy
government determines what goods should be produced, how much should be produced and the price at which the goods are offered for sale
- powerful central planners make economic decisions
- the individual citizen must defer to the leaders
command economy pros
speed/unity
less inequality
low unemployment
cons of command econoy
less productive (less incentives)
no competition stifles innovation
inefficiency ( knowledge problem)
lack of property rights (tragedy of commons)
less economic freedom/mobility
less wealth
market economy
individuals make the economic decisions
government has little to say in what is produced, sold, or consumed
relies on “the market” to provide enough resources
private property is protected by government
market economy pros
increased productivity
consumers and businesses drive supply and demand
competition encourages efficiency and innovation
innovation is rewarded with profits
businesses invest in one another
more economic freedom/ mobility and wealth
cons of markey economy
negative externalities
anti-competition practices
public goods (safety, infrastructure, etc)
can deepen wealth inequality
difficult to coordinate society-wide responses to events
mixed economies
a system that combines characteristics of market and command economies
varies widely from country to country
many countries want govt to step in when market operates in ways that society finds unacceptable
and for public works projects
tragedy oof the commons
a social and political problem in which each individual is incentivized to act in a way that will ultimately be harmful to all individuals
what is the government’s role in a market economy
to prevent unemployment and inflation at the same time
and increase gdp
if govt focuses on preventing infltion and slows down the economy, unemployment increases
if govt focuses on limiting unemployment and overheats the economy, inflation increases
inflation
general increase in the prices of goods and services in the eonomy over time that corresponds to the decreaes in value of money
gross domestic product
the total value of everything produced within a country’s borders
when economists talk about the size of the economy, they are refering to gdp
fiscal policies
refers to decisions the government makes about spending and collecting taxes and how these policy changes influence the economy
expansionary policies
help speed uo the economy or increase economic growth
contractionary policues
helps slow down the economy or slow economic growth
monetary policy
a central bank’s actions and communications that manage the money supply. central banks use monetary policy to prevent inflation, reduce unemployment, and promote moderate long-term interest rates
example of free market
if a society wants computers and peopleare willing to pay high prices then
businesses have the incentive to male computers for profit
this leads to competition
competition means lower prices, better quality, and more product variery
why must the government provide public goods and srvices
it is impractical for the free-market to provide these goods becayse there is little opportunity to earn profit
free riders benefit without paying
two key characteristics of public goods
nonexcludable and nonrivalrous
^makes it difficult for market producers to sell the good to individual consumers
nonexcludable
means that it is costly or impossible for one user to exclude others from using a good
ex: public good applies to everyone/ most people and therefore you can’t be excluded from it
nonrivalrous
when one person uses a good, it doesn’t prevent others from using it
ex: public defense applies to everyone so you can’t take it up from someone else
externalities
a third person side effect
when there are external benefits or external costs to someone other than the original decision maker
ex: pollution
perverse incentives
when people are incentivised to do the opposite of what they are desired to
negative impact
