Economic Systems

Question 1

Economic System

Answer 1

is the decision-making structure of a nation’s economy, characterized by the entities and policies that shape it. It may involve markets, firms, and the government to answer the economic problem of resource allocation.1

Question 2

Gross Domestic Product (GDP)

Answer 2

The total value of goods and services provided in a country in a one-year period

Question 3

Gross National Product (GNP)

Answer 3

The total value of goods and services provided by a country, both inside and outside of its borders, in a one-year period

Question 4

Five Key Characteristics of a traditional economy

Answer 4

1. Centered around a family or tribe and guided by tradition
2. Found in hunt-gatherer and nomadic societies; everyone consumes and produces the same goods.
3. Relies on bartering
4. Members produce what they need with no surplus
5. Eventually, the economy evolves to some form of currency

Question 5

The advantages of a traditional economy include the following:

Answer 5

1. There is little or no friction between members. Each member depends on each other for support. Custom and tradition dictate resource allocation.
2. All members understand their position in society and what they are expected to contribute.
3. It is more sustainable.

Question 6

The disadvantages of a traditional economy include the following:

Answer 6

1. It is at the mercy of the climate.
2. There is a lower standard of living.
3. It is vulnerable to a more efficient market or to command economies (Amadeo, 2019).

Question 7

Command Economies

Answer 7

• operate very differently than the others. In a command economy, economic effort is devoted to goals passed down from a ruler or a ruling class.
• resources and businesses are owned by the government.

Question 8

The advantages of a command economy include the following:

Answer 8

1. Organizations can mobilize large amounts of resources without fear of lawsuits or environmental regulatory issues. Therefore, large projects can more easily be undertaken.
2. An entire economy can be transformed based on a leader’s vision.

Question 9

The disadvantages of a command economy include the following:

Answer 9

1.Rapid change can lead to the neglect of society’s needs.
2. The production of goods and services are not tied to demand, and, if too little is produced, rationing is necessary.
3. Following the rules, not innovation, is rewarded.
4. Black markets or shadow economies are common (Amadeo, 2019).
5. The economy is less flexible and slower to react to change (Zeder, 2019).

Question 10

Market Economy (Decentralized)

Answer 10

• leaders make decisions based on consumer demands. Goods and services are produced and distributed according to the rules of supply and demand. In other words, consumers influence how much product and services are made available through their purchasing and usage patterns.
• A market economy uses prices to regulate the balance between supply and demand.

Question 11

six characteristics of a market economy:

Answer 11

It is standard for all goods and services to be privately owned. The owners have the right to buy, sell, or lease their property and make a profit off of their assets.
People are free to choose to produce, sell, and purchase goods at the price set with the capital they possess.
Every seller aims to make the most profit possible.
Competition keeps prices low. Pricing follows the laws of supply and demand.
Market economy relies on an efficient market in which all buyers and sellers have equal access to the same information.
Government interference is at the minimum that is necessary to ensure the markets are functioning correctly (Amadeo, 2019).

Question 12

The advantages of market economies include the following:

Answer 12

Consumers pay for the things they want the most, and businesses produce the goods and services that will earn them a profit.
Production methods are efficient in increasing both productivity and profitability.
Innovation is encouraged and rewarded.
Investments by individuals and organizations in other successful organizations drive both innovation and quality improvement.

Question 13

The disadvantages of a market economy include the following:

Answer 13

Those who cannot compete as well, such as people with disabilities and their caretakers, may be at a competitive disadvantage.
Not all can reach their full potential due to their inability to access education and obtain means to improve skills.
There is a significant divide between the privileged and the underprivileged. Society must choose how to balance self-interest and protect the vulnerable (Amadeo, 2019).

Question 14

Mixed Economies

Answer 14

A mixed economy borrows the following characteristics from a market economy: It protects private property, the laws of supply and demand determine prices in a free market, and it is driven by self-interest. A mixed economy, like a command economy, uses the federal government to protect the people and the market as well as oversee the military and international trade and national transportation (Amadeo, 2019).