Economic Chapter 2, Lesson 1

How does a command economy answer the questions of what, how, and for whom to produce?

A central authority makes the major decisions about WHAT, HOW, & FOR WHO to produce.

Describe the differences between a market and a command economy.

A command economy is an organized way owned by the government a society provides for the wants & needs of it's people. Market economy is an economic system owned by the people in which supply, demand, & the price system help people allocate resources & make the WHAT, HOW, & FOR WHO to produce decisions; same as free enterprise economy. In an Command Economy, the government answers the questions. In an Market Economy, the people answer the questions.

How does a traditional economy answer the questions of what, how, and for whom to produce?

Rituals, habits, or customs.

What are the advantages of a market economy?

A market economy has a high degree of individual freedom. It adjusts gradually to change over time. There's a relatively small degree of government interference. Decision making is decentralized. Variety of goods & services are produced. There's a high degree of Consumer satisfaction. Goods are usually privately owned.

In your own words, describe what capitalism is.

Economic system in which private citizens own & use all 4 factors of production to make money.

What are the functions of an economic system?

It provides for the needs & wants in an economy. The 3 questions that need to be answered are: What to Produce?, How to Produce?, & For Who to Produce?

What are the disadvantages of a market economy?

The market economy doesn't provide for everyone. It also may not provide enough of some basic goods & services. It also has a high degree of uncertainty.

How does the economic freedom that defines a market economy help answer the questions of what, how, and for whom to produce?

What to Produce?- Consumers have the freedom to choose what to buy. How to Produce?- Businesses have the freedom to make their decisions to make them efficient. For Who to Produce?- They can choose what they think would be most profitable. People can market to different groups of people.