Economic Systems: Command Economy vs. Laissez-Faire

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In a traditional command economy, who decides how much of a product is needed?

The government

What is a key feature of a laissez-faire capitalist system?

Limited government involvement

Which economic system is based on the principles of supply and demand?

Capitalist economy

What is a disadvantage of a traditional economy?

It discourages innovation

What is a characteristic of a mixed economy?

Some government involvement

What is a drawback of a command economy?

It leads to economic stagnation

What is a disadvantage of a command economy?

No room for individuality

What is a benefit of a mixed economy?

Provides public goods while allowing private competition

What is a characteristic of a socialist system?

People's basic needs are taken care of

What is a drawback of a capitalist system?

No public goods

What is a benefit of a capitalist system?

High degree of customer satisfaction

What is a disadvantage of a mixed economy?

Always winners and losers

What is the main criticism of capitalism by Karl Marx?

It leads to exploitation of the lower class by the upper class

In a mixed economy, the government's role is to:

Provide public goods and services, and intervene when necessary

What is the main principle of the laissez-faire approach?

The government should provide public goods and services, but not interfere with the economy

What is the main goal of a socialist economy?

Meet people's needs and achieve greater equity

What is the concept that describes individuals acting in their own self-interest, leading to the greater good?

The invisible hand

In a command economy, who plans the entire economy?

The government

Study Notes

Economic Systems

  • Traditional Economy: Based on customs, traditions, and rituals; decisions made on what, how, and for whom to produce are based on these factors.
  • Examples: Amish, some African countries, Australian Aborigines.

Command Economy

  • Government decides what, how, and for whom to produce; everything is predetermined.
  • Examples: North Korea, Cuba, China (formerly).
  • Based on government plans and projections.

Market Economy

  • Based on supply and demand; laissez-faire approach.
  • Examples: US before 1949, Canada, South Korea, Singapore, Great Britain, Germany.
  • Focuses on individual freedom and lack of government interference.

Mixed Economy

  • Combines elements of market and command economies; government involvement in some aspects.
  • Examples: US after 1949, most countries today.
  • Regulates economy to prevent market failure and provides public goods.

Three Main Questions of Economic Systems

  • What will be produced?
  • How will it be produced?
  • For whom will it be produced?

Philosophy of Economic Systems

  • Traditional Economy: Focuses on customs and traditions.
  • Command Economy: Government decides people's needs.
  • Market Economy: Based on individual freedom and lack of government interference.
  • Mixed Economy: Combines elements of market and command economies.

Key Figures

  • Karl Marx: Criticized capitalism, advocated for socialism.
  • Adam Smith: Advocated for laissez-faire approach, believed in the "invisible hand" of the market.

Economic Functions of Government

  • Maintain the legal and social framework.
  • Provide public goods and services.
  • Regulate economy to prevent market failure.
  • Maintain tradition.
  • Provide for education and public health.
  • Decide how much is needed and produced.

Quiz about the advantages and disadvantages of command economies and laissez-faire systems, including their impact on individual freedom, government control, and economic production. Learn about the trade-offs between government-controlled and market-driven economies.

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