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Questions and Answers
What is the best known example of a command economy?
In a market economy, who owns the factors of production?
What drives the decisions in a market economy?
Which economic system is characterized by individual freedom, competition, and less government control?
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In a market economy, who decides what to buy?
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What determines how a society answers the basic economic questions?
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In a pure market economy, who coordinates the decisions?
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What is the primary role of governments in ensuring markets stay competitive?
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What are externalities in an economic context?
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What is the opposite economic system of a command economy?
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What did Karl Marx predict would lead to the overthrow of capitalists?
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In Communism, what is the envisioned property ownership model?
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Study Notes
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.
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Description
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.
