Test 1

Question 1

Short Answer Question: What is the difference between socialism and communism?

Answer 1

Socialism - The government controls some of the economy/certain industries. Reasons for this may include wanting to stabilize an industry, wanting to provide all citizens (consumers) with goods or services they might not be able to afford if the market dictated the price. Example: The government owns roads and the land on which roads are built. Obamacare (government sponsored healthcare), Obamaphone (government sponsors smart phones).

Communism - The government controls (literally owns) the entire economy and dictates all prices and makes all decisions. Example: The Chinese government owns all domestic businesses and land in China. They allow thier citizens to make decisions but the government has final say.

Question 2

Short Answer Question: What is the difference between absolute and comparative advantage?

Answer 2

Absolute advantage - Only one entity (business/company/region) can produce the good or service. Example: Cinnamon can only be produced in the East Indies, certain coffee can only be grown in the Peruvian mountains.

Comparative advantage - Multiple entities (businesses/companies/regions) can produce the good or service, but some can do it better than others. Example: Japan can produce cars better than other countries for various reasons (thier process is better, thier labour is cheaper, ext.); China has a comparative advantage in the textile (clothing) industry (primarily because of cheaper labour) compared to Europe or the U.S.