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Economic Systems
Unit Test
| Question | Answer |
|---|---|
| Traditional Economy | The use of scarce resources stems from ritual, habit, or custom. Economic decisions are made by ancestors or elders. |
| Market Economy | The use of scarce resources is dispersed throughout the society. Economic decisions are made by individuals. |
| Command Economy | The use of scarce resources is determined by a central authority. Economic decisions are made by the government. |
| Mixed Economy | The only kind of economic system that exists in the real world. All other systems are theoretical ideals. |
| Socialism | Basic productive resources are gov't owned, the rest are privately owned. Gov't plans and directs allocation of resources in key industries. |
| Capitalism | Productive resources are privately owned and operated. Resources for production are obtained by individuals' desire for profit but the gov't may promote competition and provide public goods. |
| Communism | All productive resources are gov't owned and operated, centralized planning directs resources, and gov't makes all economic decisions. |
| Circular Flow Matrix | Model depicting the interchange of resources and products in a market economy. |
| Name 3 examples of command elements in the US economy: | Monopoly Laws, Emissions Standards, Quality Assurance Laws, Licenses |
| In the circular flow matrix, businesses sell goods and services where? | The product market |
| What is money paid to businesses for goods and services called? | Revenue |
| What is money paid by businesses for resources called? | Costs |
| What is money paid to households for resources called? | Income |
| What is money paid by households for goods and services called? | Spending |
| What kind of income is paid for land? | Rent |
| What kind of income is paid for capital? | Interest |
| What kind of income is paid for labor? | Wages |
| What kind of income is paid for entrepreneurs? | Profits |
| What is government money given as incentives to businesses called? | Subsidies |
| What is government money given directly to households called? | Welfare |
| What is money given by businesses and households in exchange for public goods? | Taxes |
| Monopoly | Market structure with only one seller of a particular product. |
| Oligopoly | Market structure in which a few very large sellers dominate an industry. |
| Monopolistic Competition | Market structure that has all the conditions of perfect competition except identical products. |
| Perfect Competition | A market structure characterized by a large number of well informed independent buyers and sellers who exchange identical products. |
| Benefits of competition: | Higher quality goods and services, improved service, lower prices, increased innovation , more adaptive workforce |
| In the circular flow matrix, households sell the factors of production where? | The resource market |
| Advantages of a command economy: | Capable of quick, dramatic change; many basic public services available at little or no direct cost |
| Disadvantages of a command economy: | Does not meet the needs and wants of consumers; Lacks effective incentives to get people to work; Requires large bureaucracy, which consumes resources; Has little flexibility for day to day change; Inefficient allocation of resources |
| Advantages of traditional economies: | Sets forth clear economic roles for all members of the community; stable, predictable, and continuous life |
| Disadvantages of a traditional economy: | Discourages new ideas; Stagnation and lack of progress; Lower standards of living |
| Advantages of market economies: | Individual freedom; capable of gradual adjustment to change; lack of gov't interference; high variety of goods and services; higher degree of consumer satisfaction; higher standards of living |
| Disadvantages of market economies: | rewards only productive resources (not the young, old, or sick); does not produce public goods; workers and businesses face uncertainty from competition or change |
| Mercantilism | A state-driven economic system which emphasizes the build up of mineral wealth by means of a favorable balance of trade. |
| Feudalism | Economic system in which the nobles held lands from the monarch in exchange for military service and poor farmers exchanged labor to nobles for protection |
| Fascism | Sometimes characterized as "far right," an economic system characterized by total state control, with some private property, aimed at the supremacy of the nation over the individual and the world |
| ESSAY: Review your notes. | One paragraph on the comparative strengths and weaknesses of command and market economies. |
| Structural | Type of Unemployment that involves changes in the structure of the labor market that make some skills obsolete. Most of these jobs will never come back. |
| Frictional | Type of unemployment where people are temporarily unemployed or between jobs |
| Cyclical | Type of unemployment that results from an economic downturn or recession. Drop in demand for goods & services result in drop in demand for labor and employers are forced to lay off workers. |
| Natural Rate of Unemployment | 3-6%, sum of structural & frictional unemployment (two kinds of unavoidable unemployment) |
| Highest Unemployment in US History | Great Depression 25.6% |
| What 2 categories of people with major financial needs are not calculated in the unemployment rate? | the underemployed and discouraged workers (those who have stopped looking for a job) |
Created by:
dosselaer
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