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Economics 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 ______) Problems: _______________ 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 Examples: 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 _________travel) 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) 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 (Venezuela) 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?