economic systems Flashcards
What is an economic system?
A complex network of individuals, organizations, and institutions and their social and legal interrelationships.
This includes how these entities interact within the economy.
What characterizes a command economy?
Government allocates resources through a planning process.
In a command economy, market prices play little or no role in resource allocation.
What is the role of the state in a command economy?
The state decides what is produced, how it is produced, and for whom it is produced.
Workers are assigned jobs by the state.
Name two examples of planned economies.
- North Korea
- Cuba
These economies are often seen as purer examples of planned economies.
What transition did many command economies undergo from the 1980s?
Transition towards a mixed economy.
This included countries like the Soviet Union and China.
What is a Free Market Economy?
An economic system where resources are allocated by the price mechanism through demand and supply.
Also known as Market Economy, Capitalism, or Laissez Faire.
Who coined the term ‘invisible hand’ in economics?
Adam Smith.
This concept illustrates how individual self-interest in a free market leads to economic benefits for society.
In a free market economy, who owns the factors of production?
Nearly all factors of production are owned by private individuals or organizations.
This ownership structure is fundamental to capitalism.
What motivates consumers, producers, and owners in a free market economy?
Pure self-interest.
This motivation drives the allocation and use of resources.
Fill in the blank: In a command economy, goods are allocated through _______.
rationing.
Rationing is a method used to control the distribution of scarce goods.
True or False: In a free market economy, government intervention is minimal.
True.
The price mechanism operates without significant government interference.
