Types of Economic Systems Quiz

Economic Systems

• An economic system is the way a society organizes the production and consumption of goods and services.

Command Economy

• Characterized by the government making all economic decisions.
• Example: Cuba, where the government tells people when and when they cannot run their own business.
• In a command economy, the government decides what to produce, how to produce, and for whom to produce.

Market Economy

• Characterized by individual freedom, competition, and less government control.
• Examples: United States, characterized as a synonym for Capitalism.
• Characteristics:
  • Private citizens own the factors of production (natural resources, capital, labor, and entrepreneurship).
  • Businesses decide what to produce, how to produce, and for whom to produce.
  • Decisions driven by business owners' desire for profit.
  • Consumers decide what to buy, and supply and demand interact to set prices.
  • Decentralized decision-making, with many individuals involved.

Dealing with Externalities

• Externalities: unintended side effects that affect third parties.
• Government works to reduce negative externalities (e.g., pollution) and encourages positive externalities (e.g., funding scientific research).

Per Capita GDP

• The total GDP divided by the country's population.
• Expresses GDP in terms of each person, allowing for comparison of nations' economic success regardless of size.

Socialism and Communism

• Socialism: the belief that the means of production should be owned and controlled by society directly or through the government.
• Goal: distribute wealth more equally among all citizens.
• Communism: a system in which all property is held in common, and there is no need for government.

Government Control

• In a command economy, the government owns most productive resources, such as land and capital.
• The government decides what to produce, how it's produced, and for whom.

Test your knowledge about different economic systems such as command economy and market economy. Learn about how societies organize the production and consumption of goods and services.