UNIT 1: Introduction To Economics- Basic Concepts.

Name_____________________________________

Comparison of Economic Systems

1. Define Economics:

2. What are the three questions all economic systems answer?

Word Bank: Laissez Faire government (2) private property entrepreneurs companies inequality programs exploitation (suffering) monopolies command communism unproductive middle Efficiently consumers exchange money (2) illegal competition mixed Supply Market (3) Trade Capitalism war industries businesses tax (2) 3. A traditional economy is characterized by the ____________________________________ of goods in which two people trade their possessions with each other. 4. Traditional economies do not use _______________________________ as a medium for trade. 5. Money allows ____________________________ and producers to connect with each other much more _______________________ than bartering. 6. _________________________ economies are driven by ___________________________ and demand. 7. Freedom and _______________________ make market economies possible. 8. Another word used to describe market economies is _______________________________. 9. Those who believe in market economies think that the more you trade with another nation the less likely you are to go to ________________ with that nation.

10.______________________________________ is the term used to describe a hands-off approach by the government towards the economy. This term is also some time referred to as the invisible hand of the market. 11.Market economies are characterized by a hands-off approach to the economy by the ____________________, the protection of ______________________________ by the government, the rewarding of risk taking by ___________________________ and private _______________________________. 12.Critics of market economies claim that they result in _______________________________ between the few that are wealthy and the many that are poor. Critics also claim that market economies can lead the __________________________ of the poor in less well off countries and large ______________________________ that stifle (stop) all other competitors. 13.In ______________________________________ economic system the _____________________ has total control over the economy. 14.Command economies are characteristic of nations that embrace the political ideology of ______________________________. 15.Critics of command economies claim that _______________________________ workers are rewarded because everyone is treated the same. Critics also claim that command economies result in ______________________________ markets that operate outside the view of the government. Further, command economies can not compete with nations with ________________________________ economies because they do not promote entrepreneurship and ___________. 16.____________________________ have some of the characteristics of both command and market economic systems. Often the government owns major _________________________, but private ________________________________ also exists. 17.In mixed economies the government often heavily _________________________ its citizens in order to pay for social _______________________ such as welfare, free health insurance, unemployment compensation and education.

18.Supporters of mixed economies claim that their policies result in a large _______________________ class that is well educated and can benefit the economy in the future. 19.Critics of mixed economies claim that they often _______________________ too heavily and as a result are less competitive than nations with _________________________ economies. BCR: Compare the governments role in market, command and mixed economic systems. Describe the benefits and disadvantages of a mixed economic system. Use examples and details to support your ideas.

Market
Production and distribution of goods and services Who Businesses and ____________________ entrepreneurs produce goods and services.

Command
Individuals produce goods and services for the government. The

Mixed
Businesses , __________________entrepreneurs

produces what, who gets what, how do they get it?

Individuals, other businesses, and the government purchase the goods and services with money. The price of the goods and services is determined by the demand for the good versus its supply. Example: the black market, stock market

________________________then distributes those goods and services to the population. Example: the Soviet Union, Cuba, North Korea, Iraq

Consumer Choice How many choices does a consumer have if they want a good or service? To what degree does competition exist?

Consumer usually has _____________options when purchasing a good or service. There are usually several businesses offering the same product. This ensures competition and fair prices, as businesses compete for the consumers money. Example: Many types of soda

There is ______________choice. The government distributes only one type of product for a given good or service

Example: There is only govt-issued soda. No other brands. Not a factor. The government collects all profit and distributes it amongst the population. Example: Cuban government takes all the labor of the farmers, and distributes their work (crops) to the rest of the people.

Profit What is the role of profit in the economic system?

The main incentive of businesses. Forces them to set fair prices. Example: Taco Bell would not be profitable if no one could afford its food.

and the ____________________ produce goods and services. Individuals, other businesses, and the government purchase the goods and services with money. The government helps insure distribution of goods and services is fair, by regulating prices providing health care, etc Example: Great Britain Consumer usually has multiple options when purchasing a good or service. However, the government may own basic utilities like water, and electricity. Example: Washington Suburban Sanitary Commission, Public Education (you can not shoose the school you attend) The main factor of business. However, the government takes a large percentage of profit and distributes it among the people. Example: A successful business in France pays high taxes, which the French govt spends on improved health care.

Productivity How productive are the workers in the economic system? Is there an incentive to be productive?

__________________productive workers. If workers are not productive, then profit goes down. Example: If farmers dont harvest food quickly, they will have less food to sell.

______________________productivity . Workers see little additional benefit in being more productive. Example: A Soviet farmer may harvest food quicker, but he/she will not eat much more because of it.

Property Rights Who owns the natural, physical, and human capital in the economic system?

____________________own natural and human capital. They sell the use of these to businesses, who own physical capital. Example: A Giant employee sells his/her labor (human capital) to the store. The farmer sells the produce (natural capital) to Giant. Giant uses its refrigerators (physical capital ) to

_______________________owns all capital. Example: Cuban farmer gives away his labor (human capital). Govt owns the farm he/she works on (natural capital). Govt owns the tractor

___________________productive. Profit is still an incentive, but goods are still distributed by the government. Govt acts like a safety net. Example: A farmer harvests slow, may not profit much, but the govt will make sure he eats ____________________, businesses, and _____________________own capital. Example: Tour guide sells labor (human capital) to Grand Canyon Expeditions company. Company

sell the goods.

(physical capital) used to harvest the goods.

Standard of Living What is life like in the economic system? Are there differences in education, health care, material possession, crime, etc

Very high for some. Very low for more. Pretty good for most. Characterized by wide disparity: very rich and very poor.

Low for most. Lack of incentive to produce good products.

owns the jeeps (physical capital) used on the tours. Federal Govt owns the land (natural resource) the tour takes place on. Good for most. Balanced. Less disparity.