Questions and Answers
What are characteristics of a centrally planned economy?
A central bureaucracy makes all decisions about what to produce, how to produce it, and who gets it. The government owns land, capital, and labor.
Why does even a free market need government intervention?
Government intervention protects consumers from dangerous products and fraudulent claims, and regulates industries affecting public well-being.
What does specialization do for an economy?
Specialization leads to efficient use of resources (land, labor, and capital).
How could the Chinese economy be characterized?
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What is one of the most important advantages of a free market? (Select all that apply)
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Who is a noted free market philosopher?
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What are characteristics of a traditional economy?
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In what kind of economy does the government make all of the decisions?
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What are government safety nets? What do they provide for?
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How would the economy of Canada most likely be characterized?
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What is the motivating force behind a free market?
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What does the doctrine of laissez faire call for?
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List all of the government safety nets in this chapter.
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In what kind of economy does custom determine what someone does?
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In what kind of economy would entrepreneurs have the best chance for success?
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What is the role of the government in a centrally planned economy?
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What does a socialist believe?
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The purchase and supply of goods and services take place on the _________ market.
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Why weren't collective farms productive in the Soviet Union?
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What are the weaknesses/disadvantages of a centrally planned economy?
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Based on the continuum, what countries are closest to a free market?
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Define interest group.
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Study Notes
Centrally Planned Economy
- Central bureaucracy determines the production, distribution, and pricing of goods and services.
- Government ownership extends to land, capital, and labor.
Need for Government Intervention in Free Markets
- Government provides essential information to consumers, enhancing safety against harmful products.
- Regulation is necessary in industries impacting public welfare.
Specialization in Economies
- Specialization improves resource efficiency by optimizing the use of land, labor, and capital.
Chinese Economy Characterization
- Currently a centrally planned economy transitioning towards a market-based system.
Advantages of Free Markets
- Promotes economic efficiency by effective resource utilization.
- Encourages economic freedom allowing consumer choice and business operation.
- Drives economic growth through entrepreneurial opportunities and innovation.
- Consumer sovereignty plays a pivotal role in determining production.
Noted Free Market Philosopher
- Adam Smith is a key figure advocating for free market principles.
Traditional Economy Characteristics
- Decisions are based on customs, habits, and rituals without significant change.
Command Economy
- A command or centrally planned economy has the government making all economic decisions.
Government Safety Nets
- Programs designed to assist individuals during economic hardships such as layoffs or disasters.
- Examples include welfare programs, in-kind benefits, medical assistance, education support, and faith-based initiatives.
Canadian Economy Characterization
- Canada operates as a free market with elements of government intervention similar to the U.S.
Motivating Force in Free Markets
- Self-interest is the primary incentive driving individuals to participate in the market.
Laissez-Faire Doctrine
- Advocates for minimal government interference in economic activities.
Government Safety Nets in Detail
- Welfare: Taxes collected for aiding the poor.
- In-kind benefits: Provision of free or discounted goods and services.
- Medical benefits: Health insurance support for vulnerable populations.
- Education: Opportunities designed to assist the disadvantaged.
- Faith-based initiatives: Religious organizations aiding the needy.
Entrepreneurial Success
- Entrepreneurs thrive in free or market economies due to greater opportunities and fewer restrictions.
Government Role in Centrally Planned Economies
- The government makes all economic decisions and retains ownership of major economic resources.
Socialist Beliefs
- Socialists advocate for democratic processes to equitably distribute wealth across society.
Free Market Dynamics
- Goods and services are bought and sold in a free market environment.
Soviet Union's Collective Farms Ineffectiveness
- Lack of individual incentives led to poor productivity and quality.
Weaknesses of Centrally Planned Economies
- Common issues include low-quality goods, service shortages, and inability to meet consumer demand effectively.
Countries Closest to Free Market
- Canada, the United Kingdom, and the United States are ranked among those with a near free market economy.
Interest Group Definition
- Interest groups are organized entities aimed at influencing public officials to align with their specific agendas.
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Description
This study guide focuses on the key concepts presented in Chapters 2 and 3 of economics, covering the characteristics of centrally planned economies and the necessity of government intervention in free markets. Use it to reinforce your understanding and prepare for assessments.
