unit 3: economics systems notes

Question 1

capitalism:

Answer 1

an economic system in which citizens own and use factors of production in order to generate profits; no government regulation (laissez-faire)

Question 2

socialism:

Answer 2

an economic system in which government owns some factors of production and has a role in determining what and how goods are produced and distributed

Question 3

communism:

Answer 3

economic and political system in which factors of production are collectively owned and directed by the state: a theoretically classless society in which everyone works for the common good

Question 4

this “book” gave the ingredients and steps to make a communist society

Answer 4

Karl Marx’s “little red cookbook”

Question 5

“ingredients” for making communism

Answer 5

1. capitalism creates two distinct social classes: haves and have-nots
2. revolution: have-nots seize power by force
3. socialism: have-nots government dictates wealth since capitalism would not willingly accept
4. education: people would learn to work together (force not needed)
5. government would “wither away”

Question 6

economic system:

Answer 6

a way of providing for the wants and needs of the people

Question 7

3 key economic questions:

Answer 7

1. what should be produced
2. how should be produced
3. who should be produced

Question 8

traditional economy:

Answer 8

FARMERS
-> habit, custom, ritual
-> followed by people before (daughter learns and does what mother does)

Question 9

market economy:

Answer 9

SUPPLY AND DEMAND
-> supply, demand, and price are used to set the economy up for the what, how, and who
-> capitalism/free market

Question 10

planned/command economy:

Answer 10

TOTAL GOVERNMENT CONTROL
-> central government makes all decisions

Question 11

mixed economy:

Answer 11

-> combination of traditional, command, and market economies
-> U.S.A has a mixed economy

Question 12

market economy As and Ds:

Answer 12

advantages
-> can make lots of money
-> no government control
-> lost of individual freedom

disadvantages
-> does not always provide for basic needs
-> can have high degree of uncertainty

Question 13

traditional economy As and Ds:

Answer 13

advantages
-> everyone knows what to do
-> no confusion

disadvantages
-> discourages new ideas

Question 14

planned/command economy As and Ds:

Answer 14

advantages
-> can change directions drastically in short period of time
- ex. farming to industrial
-> don’t have to worry about making decisions about economy

disadvantages
-> total government control
-> little personal motivation to advance society or individuals
-> government intervention, lots of money lost (they tax us)

Question 15

mixed economy- communism:

Answer 15

A state of economic and political affairs where everyone would contribute according to their abilities

advantages
-> labor is organized to the advantage of the community

disadvantages
-> communism fails and becomes a command economy

Question 16

mixed economy- mixed socialism:

Answer 16

The government owns and controls some of the basic production resources

advantages
-> lots of needs are met by the government

disadvantages
-> higher cost to the government (taxes) and less personal choice

Question 17

mixed economy- mixed market:

Answer 17

Much of the economy is based on the free market, but the government still influences or owns a portion of resources

advantages
-> promotes progress, innovation, and growth

disadvantages
-> still can have high costs to the government (so they tax us)

Question 18

GDP:

Answer 18

(gross domestic product) the way we measure a country’s wealth

Question 19

what are the 5 characteristics of free enterprise capitalism?

Answer 19

1. economic freedom
2. voluntary exchange
3. private property
4. profit motive
5. competition

Question 20

economic freedom:

Answer 20

-> personal
- buy whatever you want
- choose your occupation and employer
-> business
- hire and fire workers
- produce what they like
- sell how they wish

Question 21

voluntary exchange:

Answer 21

-> buyers and sellers freely engage in market transaction
- keep it new or trash it
ex. starbucks believes their drink is worth $5 and you believe they’re worth $5 so you buy it

Question 22

private property:

Answer 22

-> people own and control their possessions
-> benefit to both buyer and seller
- satisfies want or need
-> this gives people incentive to work, save, and invest
- 14th amendment protects these rights
- states cannot deprive any person life, liberty, or property without due process

Question 23

what is due process?

Answer 23

fair treatment under justice system

Question 24

profit motive:

Answer 24

-> freedom to make or lose money
-> profit
- difference between what you make from a sale and the opportunity cost of the resource involved in the production
-> the lure of profits is what drives entrepreneurs and keeps the wheels of free enterprise capitalism going

Question 25

competition:

Answer 25

-> to attract buyers businesses must compete
- lower prices
- better value
- more innovation
-> efficient producers are rewarded, and inefficient producers are shut down

Question 26

what are some disadvantages of free enterprise capitalism?

Answer 26

-> uneven economic growth
- recent recession 2007-2009
-> gaps between rich and poor
- can be mitigated by taxes (welfare)
-> larger firms
- becomes cheaper

Question 27

what is the role of an entrepreneur?

Answer 27

-> rich taking individuals in search of profits
-> start new businesses
- most fail
-> needed to stimulate growth and advancement
-> great American entrepreneurs have given us the best economy in the world

Question 28

what is the role of a consumer?

Answer 28

-> they determine what to produce
-> consumers reward producers
-> consumer sovereignty
- ruler of the market in determining what is supplied

Question 29

what are the 3 main roles of government?

Answer 29

1. protector
2. provider
3. regulator

Question 30

protector:

Answer 30

-> protect from false advertising, unsafe products (food, drugs, cars), environmental hazards, fraudulent services

Question 31

provider:

Answer 31

-> protection with national defense and local police
-> subsidies to parts of economy (agriculture education)
-> government assistance to keep a price low
-> funding to public programs
-> highways welfare, education

Question 32

regulator:

Answer 32

-> preserving competition
-> oversee banking, worker unions, breaking up monopolies
-> businesses dislike regulation
- they don’t like being told how to run their business
-> consumers want regulation
- they don’t know how to check for bad food
-> keeps banks from losing their money

Question 33

What are some goals of the U.S government?

Answer 33

1. economic freedom
2. economic efficiency
3. economic equality
4. economic security
5. full employment
6. price stability

Question 34

economic freedom:

Answer 34

-> choice of job and how to use their money
-> cornerstone of America

Question 35

economic efficiency:

Answer 35

-> not wasting resources
-> leave for future generations resources

Question 36

economic equality:

Answer 36

-> fairness to all
-> minimum wage
-> lowest legal wage that can be paid to most workers
-> not everyone is in favor of the wage, but most in favor of the idea

Question 37

economic security:

Answer 37

-> protection from changes in economy (personal or national)
-> layoffs, injuries, disabilities
-> social security
-> federally funded program giving disability and retirement benefits to retired (age specific) or disabled
-> medicare

Question 38

what is Medicare?

Answer 38

federal health insurance for senior citizens

Question 39

full employment:

Answer 39

-> government sets policies to try and attain small % of unemployment

Question 40

price stability:

Answer 40

-> have stable prices
-> inflation
- rise in general level of prices
-> hard on people that live with fixed income
- income does not increase over time