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Chapter 2
Section 3
Centrally Planned Economies
In a centrally planned economy, the central _____________, rather than individual producers and
consumers in markets, answers the key ___________ questions of production and ____________.
A central ______________ makes all the decisions about _______ items to produce, __________
to produce them, and ________ gets them.
It is up to the bureaucrats to ensure that each firm has enough raw ____________ and
____________ to meet its production goal.
Government Control
The government owns both ______________, and in a sense __________ too.
Farmers are told __________ to plant, _________ to plant and where to send their crop. The free
market forces of _____________ and competition are __________ from the system.
The lack of ____________ voice in production and _____________ shows that under centrally
planned economies, consumers do not have ______________.
Socialism is a social ____ political philosophy based on the belief that democratic means should be
used to __________________________ throughout a society. Real equality can _________ exist
when political equality is coupled with _____________ equality.
Socialist countries may be __________________ and usually the government owns major
Karl Marx
A social philosopher who was critical of ______________ employers for their emphasis on
____________ and developed a plan for a ____________ society which he called communism.
Communism is a centrally planned economy with _____ economic and political ________ resting
in the hands of the government.
Unlike socialists, communists governments are ______________.
Authoritarian governments require strict _____________ from their citizens and do not allow
individual _____________ of judgment and action.
The Soviet Union
the early 1900’s the USSR was most concerned with building ___________________ and
prestige. They allocated the best land, labor and capital to the ____________, space program and
production of _______________. They created large state-owned farms. Aggie workers were
________________ employment and income…with ______ incentives, individuals had few reasons
to produce ________or ________ crops, thus ultimately the Soviets could not feed its entire people.
state also owned heavy industry. Again, once production _________ was met, there was no
_________ to produce more quality goods. In fact, it was ______to exhibit entrepreneurial behavior.
Consumer goods were __________ and poor quality. For example, a manufacturer assigned to
produce a certain number of suits could loosely stitch the buttons and forget the buttonholes and
mismatch coats and trousers…but still the state store had to _________ delivery of the suits and
consumers had ___________________.
Consumers would have to wait ___________ in line for goods. Items such as housing and food
were ____________, yet rarely available.
The breakup of the Soviet Union in 1991 was partly due to the collapse of its centrally planned
____________. Mikhail Gorbachev told the Soviet people that their economy was in trouble and
must _____________to help productivity. The economy grew worse, inflation soared, and goods
were scarce leading to political ___________.
Which of the following economic goals are difficult to achieve in a centrally planned economy?
Economic efficiency
Economic security and predictability
Economic equity
Economic growth and innovation
Ch 2.4 Modern Economies
Today most economies are _________ economic systems.
No ________ economic system can adequately ________ everyone’s wants and ________.
The Limits of Laissez Faire
Adam Smith believed that left to its own devices, the ______________ system would provide the
greatest benefit for _____________ and raise the standard of living.
They followed _________________, the doctrine that _____________ generally should ______
intervene in the marketplace. However, most still believed the need for a certain ___________
degree of government intervention in the economy.
Some needs that markets meet fall to governments so that _______ members of society can
participate. Ex. Education
Governments create laws ____________ property rights and enforcing contracts. Without laws
insisting on ______________, many people fear some firms would dominate others.
This all depends on the opportunity cost of pursuing each goal. Are you willing to pay taxes to
fund the army? To give money to people without jobs? To give all people an education?
Circular Flow Model: Mixed Eco
Circular Flow Model
The structure of most modern economies includes ________________.
The government pays ______ million employees 9.7 _________ dollars a year for their labor.
Governments also provide certain ______________. Ex. 4 million miles of roads
Governments also _____________ money. Ex. Social Security.
Sweden’s mixed economy has mixed benefits. The government redistributes more than ________
of Sweden’s wealth through _________ benefit programs. When a child is born, his or her parents
are entitled to _______ days of parental leave with ____ of their salary paid by the government.
Swedes _________ pay more than _______ a year for prescriptions. Your braces are _______, you
get ______ days vacation. Your ___________ is that it is the second-highest tax burden of any
industrialized country. _________ of their income is taxed versus the U.S. _________...would you
be willing to pay for these benefits for the 23% difference?
Continuum of Mixed Economies (DRAW HERE)
Music Madness
Suppose you are opening a new music store in your town.
What resources would you need? (list 3)
What would you offer? (3 consumer goods)
How would the government affect your business?(3)