unit 3: economics systems notes Flashcards
capitalism:
an economic system in which citizens own and use factors of production in order to generate profits; no government regulation (laissez-faire)
socialism:
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
communism:
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
this “book” gave the ingredients and steps to make a communist society
Karl Marx’s “little red cookbook”
“ingredients” for making communism
- capitalism creates two distinct social classes: haves and have-nots
- revolution: have-nots seize power by force
- socialism: have-nots government dictates wealth since capitalism would not willingly accept
- education: people would learn to work together (force not needed)
- government would “wither away”
economic system:
a way of providing for the wants and needs of the people
3 key economic questions:
- what should be produced
- how should be produced
- who should be produced
traditional economy:
FARMERS
-> habit, custom, ritual
-> followed by people before (daughter learns and does what mother does)
market economy:
SUPPLY AND DEMAND
-> supply, demand, and price are used to set the economy up for the what, how, and who
-> capitalism/free market
planned/command economy:
TOTAL GOVERNMENT CONTROL
-> central government makes all decisions
mixed economy:
-> combination of traditional, command, and market economies
-> U.S.A has a mixed economy
market economy As and Ds:
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
traditional economy As and Ds:
advantages
-> everyone knows what to do
-> no confusion
disadvantages
-> discourages new ideas
planned/command economy As and Ds:
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)
mixed economy- communism:
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
mixed economy- mixed socialism:
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
mixed economy- mixed market:
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)
GDP:
(gross domestic product) the way we measure a country’s wealth
what are the 5 characteristics of free enterprise capitalism?
- economic freedom
- voluntary exchange
- private property
- profit motive
- competition
economic freedom:
-> personal
- buy whatever you want
- choose your occupation and employer
-> business
- hire and fire workers
- produce what they like
- sell how they wish
voluntary exchange:
-> 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
private property:
-> 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
what is due process?
fair treatment under justice system
profit motive:
-> 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
