ECON chapter 2 guided reading (lesson 1)

scarcity is a situation that arises because

people have unlimited wants but limited resources

Each country has a unique history and culture that has affected its development. Government policies, including

involvement in the economy and its relationship with certain industries, have also been different from country to country

Most countries in South America have tended towards socialism and ________________________. _______________'s conversion to a free market has been a great success. Political instability and _____________________ have affected Argentina's transition, and ____________________ continues to resist capitalism.

isolationism; Chile; nationalism; Venezuela

When one type of economy comes in contact with another type of economy

a government adjusts to economic demands from the market and from citizens

Governments in transitioning countries

promote the privatization of state-owned businesses and give more operational autonomy to those that remain state-owned

In a society with a traditional economy, the use of

scarce resources and nearly all other economic activity stems from ritual, habit, or custom.

Name seven main disadvantages of a command economy. Give at least one illustration of each of these disadvantages.

A. Leaders provide for themselves at the expense of the general population. IN the former Soviet Union, people were forced to go without basic consumer goods and adequate housing while high ranking government officials had nice cars, houses, and food. B. Loss of Individual Freedom to choose: People have to pay for health care they do not use and free state-controlled media limits people's choices about what information they get. C. Production of low-quality goods: Workers focus on filling quotas rather than producing quality goods, resulting in things like massively heavy chandeliers to fill weight based quotas. D. Requires a large decision-making bureaucracy: planners may be more concerned with their political goals than efficient production. E. Rewards for individual initiative are rare: In former Soviet Union, doctors were paid the same as factory workers, so there was no incentive to go through the extensive education and training to become a doctor. F. Planning bureaucracy lacks the flexibility to deal with problems: command economies tend to lurch from one crises to the next or collapse. G. Economies remain small because there are too many decisions to handle efficiently; it is hard for an economy the size of the former Soviet Union to effectively coordinate all economic decisions.

Mixed economies offer both

benefits and disadvantages to members of society.

A traditional economic system answers the questions of WHAT, HOW, and FOR WHOM to produce based on

ritual, habit, or custom.

Formerly the model of European socialism, __________________ now mixes _________________capitalism and generous __________________.

Sweden; high-tech; welfare

Why are former socialist and command economies, like those of China, Cuba, and Russia, adopting more free-market practices?

The benefits of economic growth, which come from more privatization, are beneficial to the countries' leadership.

Singapore's high GDP is largely due to is specialization in _________________________________ services, ___________________________, and ______________________.

telecommunications; biotechnology; software

Name the significant disadvantages to a market economy.

Does not provide for everyone; may not provide enough of basic goods and services, like roads, libraries, education, and health care; high degree of uncertainty

Because consumers and business operators have more freedom to make choices about what goods and services to produce and purchase

their motivations help signal to the market what the economy should provide

Economic systems are organized ways a society provides for the

wants and needs of its people by answering the questions of WHAT, HOW, and FOR WHOM to produce.

in a command economy

a central authority makes decisions.

What do people do in a market economy do to guide production?

People spend their money on the products they like the most, and this acts as a signal to tell the producers what to produce more of.

In a pure command economy

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

The most vulnerable members of society benefit from a

mixed economy since they are offered some social safety net

Most economies are considered mixed because

most have some portion of the means of production under government control. Most economic systems also have some element of the market or capitalism.

State-owned property is privatized. Government gives up a measure of

power and control on one hand and provides aid to certain industries on the other

In a market economy

the people themselves determine WHAT, HOW, and FOR WHOM to produce.

The government distributes these vouchers to citizens so that they can

gain a share of ownership of businesses that were once state owned

Mixed economies usually share characteristics with all three economic systems (they are...)

market, socialistic, and traditional.

Compare and contrast two of the three economic systems discussed in this lesson. Consider how each system answers the questions of WHAT, HOW, and FOR WHOM? In your opinion, which system works best, and why?

Students' answers will vary depending on which economic systems they chose, but should detail how both economic systems answer the questions of WHAT, HOW, and FOR WHOM to produce.

To help convert state-owned property to __________________ property, transitioning countries have used __________________—certificates that individuals or groups can use to purchase that property.

private; vouchers

Both countries once tried to boost production through central planning. Government tried to control economic activity by formulating a series of Five-Year Plans to guide their management of the economy. But managing a large, complex economy proved difficult, and when the plans failed to meet preset quotas, shortages resulted. Transitioning to capitalism frees an economy from central planning and lets free market forces set supply. When a shortage develops

privately owned producers are free to adjust to the unmet demand by producing more

Why might rulers of command and socialist economies see market-oriented reforms as a threat to their leadership?

A prosperous population may wish to continue to move away from the command economic model, threatening the government's control.

How did nineteenth-century Inuit people ensure their scarce resources would support them through harsh Canadian winters?

A traditional means of dividing the spoils of the hunt ensured all people got enough food, even though first choice of the meat cuts went to the hunters who killed the animal.

Why are the majority of the world's economies mixed? What may happen to the "pure" types of economies (traditional, socialist/command, market capitalist) when they incorporate elements from other economic models?

Answer should include: Countries modify their economic systems in order to meet the needs of the people or accomplish economic or political goals. Answer also should demonstrate student understands the benefits (the ability to care for more citizens, citizen empowerment, more prosperity and growth) and disadvantages (increased taxes, loss of government control, less efficiency) of mixed economies

Contrast two economies that transitioned to capitalism and explain what factors affected the ease of their transition as well as the "face" of capitalism that each has adopted.

Answer should include: The political, social, and economic history of a country will affect the success with which it transitions to another economic system, as well as the modifications it makes to the system.

Define communism. What is the difference between communism and a command economy?

Communism is an economic and political system in which factors of production are collectively owned and directed by the state and is based on a theoretically classless society in which everyone works for the common good. In communism, there is no government, since all members of society contribute to the common good, but a command economy relies on government.

some countries under communism

Cuba, Laos, North Korea, and Vietnam

In an economic downturn, what can happen in countries that depend on high taxes to fund social programs?

In an economic downturn, the government collects fewer taxes, so less money is available for these programs.

What factors can lead to the development of mixed economies? What led to the development of U.S. government economic programs in the 1920s and 1930s?

Mixed economies can develop through contact with other cultures, revolution, and dissatisfaction with the way their economy performs. In the United States, the conditions were so harsh during the Great Depression that many government programs were introduced.

What advantages does a mixed economy have over a purely market capitalist economy?

Mixed economies have policies in place that provide for those too young, too old, or too sick to provide for themselves. Even if government does not own resources, voters in a democracy can grant the government the authority to use some of a country's resources for public projects. Mixed economies tend to grow faster than former command economies.

Are most economies purely capitalistic, purely command, purely traditional, or mixed? Of the economies that are mixed, what is the most dominate type of mixed economy?

Most economies in the world are mixed economies. The majority of those are mostly capitalistic with market features.

Are there any true communist economies today? Which economies call themselves communist, and what are they, if not communist?

No, communism is a theoretical ideal that has never been reached. Laos, North Korea, and Vietnam describe themselves as being communist when they are actually a version of extreme socialism, with modest elements of tradition and sometimes even economies.

Is the United States a purely market capitalist economy? Why or why not?

No. The U.S. economy has elements of traditional, free market, and socialist economies.

What is an example of a command economy today? What are some socialist economies?

North Korea; Cuba, Vietnam, and Hugo Chavez' Venezuela

___________________ has always been a feature of the Taiwanese economy, but experts warn that the _______________ ____________________ _______________ will hamper growth in the future.

Planning; centralized planning process

Explain the difference between capitalism and a market economy.

The term capitalism draws attention to the private ownership of resources, while the term market economy focuses on where the goods and services are exchanged; the two terms focus on different features of the same economic system.

How do command or socialist economies benefit their citizens?

They can change direction drastically; many citizens receive goods and services that they might not otherwise be able to afford.

In a command economic system, a central authority—for example, a tribal leader, central committee, president, or dictator—determines

WHAT, HOW, and FOR WHOM to produce.

in a command economy

a central authority owns the resources

Even though there are several different kinds of economies, there are more mixed economies— economic systems where tradition, government, and markets each

answer some of the WHAT, HOW, and FOR WHOM questions—than any other kind.

Although China has adopted many _____________________ practices since the 1980s, two significant barriers to its growth are its ____________________ population and air and water _______________________.

capitalistic; aging; pollution

In a market economy, people are

free to make their own decisions

A market economy has a high degree of

freedom

a command economy has a low degree of

freedom

under communism

goods are distributed to all people, and everyone consumes according to their needs

The main difference between capitalism in Japan and in the United States is intense ______________________ involvement with the private sector. Additionally, tightly- knit firms governed by a board of directors, called the ____________________, reduces the threat of _______________________.

government; keiretsu; competition

Advantages of a mixed economy

grows faster and protects the most vulnerable citizens

Governments in capitalist countries

identify desirable markets and industries and then use subsidies and other means to help related businesses compete in them

A market economy allows for

individual ownership of resources

War-devastated South Korea went from exporting _____________________ consumer goods to becoming a leader in production and export of ________________ appliances, televisions, and even durable goods, such as _____________________________.

inexpensive; home; automobiles

Transitioning countries must take into account the costs of capitalism, because they will experience its ___________________________—such as the Great Depression's __________________________ and __________________ __________________— before they experience its benefits.

instabilities; unemployment; social unrest

In Russia, after the Soviet Union collapse, influential _______________________ retained power by acquiring large numbers of _________________, so the ruling class gained __________________ power in place of __________________ power.

politicians; vouchers; economic; political

Capitalism has led many countries to an improved __________________ of __________________, and __________________ coverage broadcasts information about the wealth capitalist countries can generate. This, plus the __________________ of the Soviet Union, has inspired countries to attempt the difficult transition to capitalism.

standard; living; media; collapse

They have to adjust to a new set of incentives. They must learn how to make decisions on their own, to work hard and do a good job, to take initiative, to interpret prices, and to generally fend for themselves in

free markets

Even after capitalist practices are in place, people may have trouble adjusting to new ______________________, such as taking ______________________, interpreting ____________________, making their own ______________________, and fending for themselves in the marketplace.

incentives; initiative; prices; decisions

Describe the reason Sweden is no longer considered a socialist country. When did it change, and what is its economy today?

Citizens objected to the taxes in the 1980s, so now it's a mixed market economy because it has not given up all of its social programs.

Name some other mixed-market economies.

Denmark, Germany, France, China, South Korea, India, and Thailand

Disadvantages of mixed economy

cost of services leads to high taxes

Capitalism is an economic system in which

private citizens own and use the factors of production for their own profit or gain.

Name seven main advantages to a market economy. Give at least one illustration of each of these advantages.

A. High degree of individual freedom: people are free to buy whatever products and goods they choose, decide where and when to work, and what investments to make in their own education. B. A market economy adjusts gradually to change: For example, the adjustment that happened when higher gas prices drove people away from large gas-guzzling SUVs. C. Relatively small degree of government interference: Instead of dictating every economic decision, the government only gets involved in certain concerns like defense and justice. D. Decision making is decentralized: decisions are made by consumer spending, not by a central authority. E. The variety of goods and services produced: if a product can be imagined, then it will likely be produced in the hopes that people will buy it. F. High degree of customer satisfaction: The choices of one group do not limit the choices of another group. G. Goods are privately owned and therefore last longer: people take better care of property they own, and this care helps scarce resources go further.

In Russia, the economy has gone from Stalin's _____________-_____________ Plans, directed by the central committee, or ___________________, to Mikhail Gorbachev's _______________________ in the 1980s. This led to increased _______________________ of property, which continued until__________________________, Boris Yeltsin's successor, took power.

Five-Year; Gosplan; perestroika; privatization; Putin

China's 1958 Five-Year Plan, the _________________________________________, tried to communalize Chinese __________________ and ______________________. The results of its performance led China to ___________________ the Soviet model.

Great Leap Forward; industry; agriculture; abandon

What are some advantages to a traditional economic system? What are disadvantages?

In a traditional economic system, there is stability and certainty about questions of production, but there is also little opportunity for innovation and growth. Stagnation and low quality-of-life are likely.

Explain the difference between socialism and a pure command economy.

In socialism, the government owned some, but not all, factors of production. In a pure command economy, the government owns all factors of production.

Who owns most of the resources in a market or capitalistic economy? In a socialist or command economy? What determines ownership in a traditional economy?

private individuals or businesses; the government; tradition

Numerous Eastern European countries transitioned to capitalism in a relatively ______________ time period after the fall of the Soviet Union. ___________________ was the first, with its labor union called ________________________. Poland joined the _____________________ Union, an association of European nations to develop a single market, in 2004. Hungary's transition was helped by the fact that it had a thriving ____________________________________ where entrepreneurs and merchants sold goods illegally.

short [or small]; Poland; Solidarity; European; black market