Economic Systems Flashcards
What are the four scarcity resources?
Land, labour, capital and entrepreneurial ability
What three questions must a society ask itself regarding production?
What to produce?
How to produce?
Whom to produce for?
What are the three distinct economies?
What is their historical order?
What does the world have now?
Traditional, command and market.
Primitive societies had traditional economies.
When civilisations formed there were command economies.
After the enlightenment came market economies
Now we have hybrids of command and market economies.
When was the age of enlightenment?
What was it?
The 18th Century.
We fundamentally changed the way we viewed the world.
Which two items were published in 1776?
Thomas Jefferson - ‘Declaration of Independence’
Adam Smith - ‘The Wealth of Nations’
The nature of a traditional economy
6 points
The three production questions are defined by tradition.
Found in primative cultures.
The roles are defined by gender and status in the community.
The group share possessions and private property does not exist.
Life runs along in a predictable way.
Stability and continuity are favoured over innovation and change.
Example of a traditional economy
5 points
The bushmen of the Kalahari Desert
Women perform the food gathering.
Men perform the hunting.
The food is shared by the whole community.
The old, young, weak and disabled are cared for by the group.
How did command systems develop?
What is the key aspects of a command system?
Hunter-gatherer societies grew and used up the natural food supplies.
Some became sedentary farmers.
Farming required a need for decisions about which crops to grow and how much harvest to store.
Decision making became centralised.
The key aspect is centralised decision making. One person or group of people makes the key economic decisions for the whole society.
What are general examples of command economies?
Most, if not all, ancient civilisations and communist countries of today.
A specific example of a command economy?
The pharohs of Egypt represent a central decision making entity in a command economy.
The pharoh and their advisors make the production decisions.
example “make a pyramid, use slaves, it’s for me”.
Advantage of a command economy and an example of this?
Decision makers can make rapid changes in society.
Soviet dictator Josef Stalin had a five year plan that quickly tranformed the Soviet Union from a peasant-based agrarian society into a world industrial superpower.
The downside of a command economy?
Achieved through the relocation of millions of people and the cost of millions of lives.
For example, slave labour.
Rarely do the decision makers meet the needs of the citizens.
The citizens serve the economy and the state as opposed to the economy and state serving the people.
An example of the downside of a command economy?
North Korea.
Property only belongs to the state.
Many people have little incentive to produce and those that do not care about quality.
Individuality, innovation and variety are completely lacking.
The key aspects of a market economy?
A complete lack of centralised decision making.
They operate from the bottom up (not from the top down).
The questions of production are answered by people in their own self interest.
Citizens act on the own free will to be buyers and sellers of resources and products in the market.
Market economies achieve greater abundance , variety and satisfaction than the other economies.
