Chapter 2 Economics Systems and Decision Making

Why do mixed economies exist?

There is much more diversity in the real world than in the simple traditional, command, and market economy classifications. Nations tend to change over time, sometimes taking on characteristics of other economic systems. A major domestic event like a depression or a revolution brings new ways of doing things and new characteristics.

Place the stages of Karl Marx's evolution of communism in the correct order, starting with the earliest period on top and the final stage on the bottom.

1. History... 2. Capitalist... 3. Workers... 4. A period... 5. The ideal...

What characteristics does a market economy have?

A great deal of freedom for producers A great deal of freedom for consumers

Which of these characteristics best distinguishes a command economy from a socialist economy?

A socialist economy is generally a more liberal version of a command economy.

What are the advantages of a market economy?

A wide variety of goods and services A high degree of consumer satisfaction A high degree of individual freedom Decentralized decision making

Which of the WHAT, HOW, and FOR WHOM to produce questions are answered by custom and habit in a traditional economy?

All three questions

Mixed economies with significant components of ____________ are the most economically developed.

capitalism or markets

In a __________ economy, a central authority makes the major decisions about WHAT, HOW, and FOR WHOM to produce.

command

In a command economy, the production of goods and services is

driven by government's central planners.

The former Soviet Union changed from a rural agricultural society in 1910 to a successful command economy in just a few decades by emphasizing the growth of heavy ___________.

industry

Being able to gradually adjust to change and having a high degree of consumer satisfaction are advantages of a _____________ economy.

market

A ___________ economy has the disadvantage of not providing for everyone.

market or capitalist

If a nation's economy evolves over time and adopts some characteristics of other economic systems, it is likely to become a _________ economy.

mixed

Who makes the major economic decisions in a command economy?

monarch Dictator

In the final stage of Karl Marx's evolution of communism,

there would be no need for government.

In a ___________ economy, the different roles that people play are defined by the customs of their ancestors.

traditional

True or false: Socialism is generally a more liberal version of a command economy.

true

True or false: There are no pure communist economies in the world today, and there have never been any in the past.

true

Which statement best describes Karl Marx's communist society?

Communism was an ideal community where everyone would contribute according to their abilities and consume according to their needs.

Which statement(s) regarding consumers in command economies is true?

Consumers have little freedom to choose. Consumer choices of where and how to live are limited. Many consumer products are of low quality.

What characteristics do mixed economies share?

Elements of socialistic economies Elements of traditional economies Elements of command economies

How has China benefited from having a mixed economy?

It became one of the fastest-growing and largest economies in the world.

What advantages does a command economy have?

It can enact major changes in just a few decades. It can provide low-cost food, medicine, and education.

What are the advantages of a mixed economy?

It maintains some capitalist measures such as profit and competitive markets. It often offers education, employment, and health benefits.

Which of these characterizes the production of most goods in a command economy?

Many of the goods are often of questionable quality. Workers tend to focus more on filling their quotas than producing quality goods.

__________ ___________ is one of the last command economies in the world where almost everything, including the media and tourism, is controlled by the government.

North Korea

A command economy can be found in which nation(s)?

North Korea Vietnam

What activities would you most likely observe in a market?

Sellers competing against each other to earn the dollar "votes" of consumers Buyers competing to see if they can obtain the best quality goods for the lowest prices

What are consumers likely to find when they go to a store in a command economy?

Some things like food and clothing with very low prices A limited range of goods from which to choose

What disadvantage(s) does a market economy have?

The failure to produce enough public goods like roads and city parks A high degree of uncertainty for workers and employers