What Is An Economic System Flashcards
Economic system
Method used by society to produce and distribute goods and services
The three basic economic questions
What to produce? How to produce? For whom to produce for?
Traditional economy
Rely on habit, custom, or ritual to decide what to provide, how to produce it, and for whom to distribute to.
Command economy
The central government makes all decisions about the production and consumption of goods
Market economy
Economic decisions made by individuals and are based on exchange or trade
Mixed economy
Systems that combine tradition and free market with limited gov intervention
Who answers the 3s
Traditional=customs
Market=individuals
Command=central gov
Mixed=individuals with some gov influence
Traditional (A+D)
-found in rural, underdeveloped countries (eskimos, pygmies)
-customs govern economic decisions made
-farming, hunting/gathering, done same way for generations
-economic activity centered around family/ethnic unit
-men/women given different economic roles/tasks
A:people have specific roles, security in way things done
D:technology is not used, difficult to improve
Command (A+D)
-Gov/central authority determines what, how, and for whom goods and services are produced
-command economy can be headed by a king, dictator, a president, tribal leader, or anyone else who makes the major economic decisions
-no pure command economy, closest example is Korea
-AKA as planned or managed economy
A:guarantees equal standing of living for everyone; less crime/poverty; needs are provided through gov
D:minimal choices, fewer choices of items, no incentive to produce better product or to engage in entrepreneurship
Free market economy (free enterprise) (A+D)
-AKA free economy, free enterprise economy, or market economy
-market economies are when supply, demand, and the price system help people allocate resources and make the what, how, and for whom decisions
-businesses and consumers decide what they will produce and purchase and in what quantities
-decisions are made according to law of supply and demand
-supply and demand of goods and services determine what is produced and the price that will be charged
✨a true market economy does it exist
A:competition to have the best products and services
D:huge rift between wealthy and poor
More advantages of a free market economy
Economic efficiency, economic growth, economic freedom, and additional goods
Economic efficiency
A self regulating system, it is efficient
Economic growth
Because competition encourages innovation, free markets encourage freedom of any economic system
Economic freedom
Free market economics have highest degree of economic freedom of any economic system
Additional good
Free markets offer a wider variety of goods and services than any other economic system
+private property, freedom of choice, limited gov, competition
