Economics Chapter 2-3 Study Guide

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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?

The Chinese economy can be characterized as a centrally planned economy that is transitioning to a more market-based system. Signup and view all the answers

What is one of the most important advantages of a free market? (Select all that apply)

Economic freedom (A), Economic efficiency (B), Economic growth (C) Signup and view all the answers

Who is a noted free market philosopher?

Adam Smith Signup and view all the answers

What are characteristics of a traditional economy?

Traditional economies rely on habits, customs, or rituals to decide what to produce and how to distribute it. Signup and view all the answers

In what kind of economy does the government make all of the decisions?

A command/centrally planned economy. Signup and view all the answers

What are government safety nets? What do they provide for?

Programs that protect people experiencing unfavorable economic conditions, such as injuries, layoffs, and natural disasters. Signup and view all the answers

How would the economy of Canada most likely be characterized?

A free market with some government intervention. Signup and view all the answers

What is the motivating force behind a free market?

Self-interest. Signup and view all the answers

What does the doctrine of laissez faire call for?

Little government involvement/interference in the marketplace. Signup and view all the answers

List all of the government safety nets in this chapter.

Welfare, in-kind benefits, medical benefits, education, faith-based initiatives. Signup and view all the answers

In what kind of economy does custom determine what someone does?

A traditional economy. Signup and view all the answers

In what kind of economy would entrepreneurs have the best chance for success?

Free/market economy. Signup and view all the answers

What is the role of the government in a centrally planned economy?

The government makes all economic decisions and owns land and capital. Signup and view all the answers

What does a socialist believe?

Democratic means should be used to distribute wealth evenly throughout society. Signup and view all the answers

The purchase and supply of goods and services take place on the _________ market.

free Signup and view all the answers

Why weren't collective farms productive in the Soviet Union?

Individuals had few incentives to produce more/better quality goods. Signup and view all the answers

What are the weaknesses/disadvantages of a centrally planned economy?

Poor quality goods, shortages of non-priority items and services, diminishing production. Signup and view all the answers

Based on the continuum, what countries are closest to a free market?

Canada, the UK, and the US. Signup and view all the answers

Define interest group.

Private organizations that try to persuade public officials to act or vote according to the group's interests. Signup and view all the answers

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.