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Chapter Two: Economic Systems
Types of Economic Systems
1. _______________
2. _______________
3. _______________
There are no countries with these actual systems, all have a __________of some kind
Traditional Economy
 Families or tribes make economic decisions based on __________ and ____________.
 Based on ____________and customs handed down through the generations
 One goal is simply to ___________ and everyone has a role in meeting this goal
 The good of the group always is put ___________ individual preference
 Sometimes found within another economy as a ___________ society (Amish, tribes in South America and
Africa, etc.)
Command Economy
 The ___________decides what goods and services to produce, how this will be done and who will get them
 Government makes these decisions based on their _____________ rather than citizen preference
 Government often owns means of production – ___________________ and factories
 North Korea and ________ are closest to this type of economy
Market Economy
 _______________ makes the economic decisions
 Consumers spend ________ the way they wish, enter into business, _____ their labor
 Producers _________ what to produce and how to use their resources to make the most money possible
 Individual act in their own ______________ which, in theory, benefits others (Adam Smith’s theory)
Characteristics of a Traditional Economy
Advantages: It clearly _________ the three economic questions; Produces what is best to ensure the
_____________of the society with little disagreement over goals and roles
Disadvantages: Resistant to _________, less _____________ than other economies, often no personal
preference about role they play or use of _______________ of the individual, no development of _______so
standard of living is lower
Characteristics of a Command Economy
__________ planned economy – leaders decide specifics such as wages, who gets those wages and how they are
spent (What businesses can operate in your town; What these businesses would ________ and how much;
_______would work in these businesses and how much each of them would ______)
 _______________ preferences are not often taken into consideration
 Development is often limited to ___________ areas (former Soviet Union – space travel; North Korea –
weapons and arts)
 Lack of ______________ (may even be restricted)
Problems with Command
______________ preferences are not often taken into consideration
Development is often limited to __________ areas
former Soviet Union – _______travel
North Korea – __________ and arts
Lack of ______________ (may even be restricted)
Characteristics of PURE Market
 No _____________ regulation or involvement
 Based only on _______/demand
 Right to own property and make a_________
 Right to __________ wealth
Disadvantages of Pure Market
 No Government controls
 _________ and corruption are not limited
 ______________concerns are not addressed
 Working conditions and __________ pay are not priority
 No way to provide public _________to those who cannot get them on their own
 Tends to be a _____ in standard of living – “class” system can develop
Mixed Economies
 Authoritarian Socialism
 _______________
 Democratic Socialism
 Socialism with citizen input
 _______________
 Market with government control – the more control the government has, the closer it moves to socialism
Authoritarian Socialism
 ___________ to the pure command model
 Often called _____________
 Government __________all factors
 Government often develops a long term plan for how ___________ are used and production is distributed Cuba
 May have a ____________government - North Korea
 May have elements of _______ types of economies - China
 ________________ answers the three questions (central planning)
 Often a _________ or religious authority
 People have ______ or no say in their economic lives
North Korea (__________ to pure command): Some areas in Africa (tribal leaders); _________ nations; China
Problems with Authoritarian Socialism
 Technological advancements are not encouraged except in the ________ areas (former Soviet Union and
 All resources tend to be ______________in one area (North Korea – military related production)
 Human rights are often _____ a priority (worker rights, reproductive rights, family choices, etc)
Democratic Socialism
 _____of market and command
 Government owns _______ factors of production
 Often ___________ to utilities, telephone networks and natural resources
 Control of these factors are often influenced by individuals through democratic ____________
 May include a _________
Examples of Democratic Socialism in the United States
 Control of banking industry through __________________
 Infrastructure (bridges, roads, etc)
 Military
 ______________
 Police and Fire protection
 Public Libraries
 _________________ and Social Welfare Systems
Other Democratic Socialism Countries
Sweden, Poland, __________, Angola, Mozambique, Tanzania, _____________ (although also strong Capitalism)
 ___________ to Market
 Individuals own the factors of production and answer the _________questions
 Government does ___________ to prevent “market inequalities” such as:
 Environmental Protection
 Working Conditions and ________ rates
 Product Safety
Problems with Capitalism
 Tends to favor _____________over worker
 Political _____________ over amount of government regulation (a key difference between Republicans
and Democrats in our country)
 Regulation limits corporate _________
Examples of Capitalism
United States,___________, Mexico, Japan
All of these have ______________ of Democratic Socialism – education, medical care (except US), natural
resource management, etc.
Market Economies (Capitalism) - Fundamentals
 Right to _______property
 _____________government involvement – does not mean NO involvement – means government only steps
in when and where necessary (example: economic crisis)
 Voluntary exchange – buying and selling occurs because ________parties benefit
 Specialization and Markets – people ________________ their efforts in the areas they do best (advantages)
 Competition and Consumer Sovereignty – consumers are free to _______________ what they want
(ultimate control over what is produced)
Circular Flow of Free Market
 Example – page 53
 A circular flow model shows how the ____________ sectors relate to one another
 The free market model shows ______________ between us (households) and businesses
 This is divided into product market and ___________ market
Factors Market
 Households sell their _____________ (particularly labor and entrepreneurship to businesses.)
 In exchange for the resources, businesses pay ___________ to households
Product Market
 Businesses ______ goods and services to households
 Households send payments for goods and services to ____________.
 consumer spending and business revenue
Trends in Modern Economies
 Changes in ownership
 Moving toward a ____________or Capitalistic system often leads to privatization of resources (former
Soviet Union)
 Moving toward ____________ or Authoritarian Socialism often leads to nationalization of resources
 Economies are becoming more _________ in trade, business ownership, sharing of research and
development expenses, etc
What type of economy do you have and WHY
 Who owns and controls the natural and capital resources?
 How are workers paid and how much independence do they have
 Private ownership of businesses?
 Elected Government in true elections?