Lesson 25 pg. 76 - 77

Question 1

Describe how producers and consumers relate in a traditional economy

Answer 1

> individuals have limited choice in what to produce and consume
because society is steeped in tradition, the people’s wants are relatively unchanging
large percent of resources are devoted to producing food
producers are aware that consumers’ wants are simple, and they plan their production with those simple wants in mind without considering factors that change supply and demand in more advance economic system
if too much produced, it rots and goes to waste, but if too little is produced, the people starve
people are prone to suffer more from the effects of natural disasters than are other societies
not much need for anyone to make important economic decisions

Question 2

Describe how producers and consumers relate in a command economy

Answer 2

> ruled by some type of centralized government that has power to compel people to obey its economic decrees
high percentage of economic decisions as to what should be produced, distributed, and consumed are made by central government, without much regard for consumers’ preferences
usually set up large-scale, long-range plans for production, distribution, and consumption of goods
legal production quotas and limits are set by central ministry of economic planning, causing frequent shortages and forcing people to find alternative, illegal systems for exchanging goods to avoid governmental regulations

Question 3

Define black markets

Answer 3

black markets - illegal underground systems for exchanging goods to avoid governmental regulations

Question 4

Define private sector

Answer 4

private sector - that part of an economy that is controlled by private individuals, businesses, and organizations

Question 5

Define public sector

Answer 5

public sector - which is controlled by national, state, and local governments

Question 6

What is the difference between free economy and command economy?

Answer 6

The difference between the two types of systems is in how much of the economy is run by private sector and how much is directed by public sector.

Question 7

Contrast the free market economy and the command economy

Answer 7

Free Market Economy
>interaction of demand and supply determines what shall be produced and in what quantity
>distribution of goods is decided by consumers. People spend their money to buy what they want.
>prices are efficiently determined through equilibrium between supply and demand.