Download European Economics Study Guide Answers 1a. In a traditional

European Economics Study Guide Answers
1a. In a traditional economy, goods are produced based on what their ancestors made and
their rituals or customs. The goods and services are for the people who live in the villages or
as the custom dictates.
1b. In a command economy, the government makes all economic decisions, it decides how
to make the goods and to whom they should be given.
1c. In a market economy, businesses decide what to produce based on supply and demand,
and free enterprise. Consumers buy the goods and services.
2. There are no pure command or market economies. Most countries have mixed economies
situated on the continuum closer to one type of economic system than the other. For ex.
Cuba and Russia are closer to a command economy vs. Germany, UK, & US are closer to a
market economy. The continuum is based on the amount of government control or
regulation.
3. All (3) have a mixed economy. Germany & the UK are toward the free market economy
(less governmental control) while Russia is toward the command economy (more
governmental control).
4. They are all barriers to trade between countries. Tariffs – most unrestricted trade barrier.
Taxes are placed on imported goods. Quotas – a limit is placed on an amount of product
during a period of time. Embargos – a complete ban on trading between countries involved.
Physical barriers – can slow down trade and make it harder to move goods from one place to
another, becoming more costly for those involved.
5. International trade needs a system for exchanging currency between nations in order to
ensure that the real value of the traded goods can be paid in a different currency. The
published exchange rate allows countries to make fair value trades amongst one another so
each side is satisfied with the transaction.
6. The purpose of the EU was to encourage trade and improve the economies of its member
nations. There was a belief that the more countries that were working together & using
common currencies, the more powerful the collective body. The individual smaller countries
would be more competitive in the market.
7. The 4 main factors that influence economic growth are: natural resources, human capital,
capital goods, and entrepreneurship.
8. Human capital –
With- investment in education and training of human capital yields more valuable workforce,
output of goods and services, increased revenue.
Without- decrease in labor force, decrease in output of goods & services, decrease in
revenue.
Note: The country’s literacy rate impacts the human capital.
9. Capital goods
With – investment in machines, tools, and other equipment helps to produce goods and
services, yields increased revenue. Increases GDP.
Without – inefficiency of machines, tools, and other equipment will slow down the
production process, thus decreasing output and revenue. Decreases GDP.
10. Entrepreneurship –
With – people taking risk to start businesses, jumpstarts economy, opens new jobs, produces
new products, and generates revenue to increase the GDP. They bring all the other factors
together to function as a whole, especially when organized and maximizing resources.
Without- the less entrepreneurs a country has, the lower the GDP
11. Natural resourcesWith – if country has abundance, can increase trade and bring in more money, can produce
more goods at a cheaper rate. Increases GDP.
Without- country has to import them, more costly. Decreases GDP.