Chapter 2 Economic Systems

The Boss Wants to Know… What are the 3 Key Economic Questions?

The 3 Questions Are… What goods and services should be produced? How should these goods and services be produced? Who consumes these goods and services?

Economic System The method used by a society to produce and distribute goods and services

Terms Factor Payments-the income people receive for supplying factors of production, such as land, labor, or capital Safety Net-gov’t programs that protect people experiencing unfavorable economic conditions. Standard of Living-level of economic prosperity.

Types of Economies Traditional Economy-system that relies on habit, custom, and tradition. If your pops was a blacksmith so were you.

Market Economy System in which decisions on production and consumption are based on voluntary exchange in markets.

Centrally Planned Economy System in which the central gov’t makes all of the decisions on production and consumption of goods and services.

Command Economies Were run by guys like: Vlad Lenin Joe Stalin Fidel Castro Chairman Mao

Mixed Economy System that combines traditional and free market with limited gov’t involvement.

The Free Market Market-an arrangement that allows buyers and sellers to exchange things. Specialization-firms concentrate on one good or service rather then a bunch. Firm-an organization that uses resoureces to produce a product that it sells. Profit-the financial gain made in a transaction.

Circular Flow Model of a Market Economy

More Terms… Factor Market-market in which firms purchase the factors of production from households. Product Market-market in which households purchase the goods and services that firms produce. Self-Interest-one’s own personal gain. Incentive-a reward that encourages certain behaviors.

Karl Marx

Friedrich Engels

Marx & Engels The Communist Manifesto-written in 1848. The basic philosophy is that the capitalist system will eventually crumble do to a gross uneven distribution of wealth. When this happens the working class or proletariat will overthrow the elite ruling class and establish a society that distributes wealth evenly.

The Communist Manifesto

Socialism Democratic means should be used to evenly distribute wealth

Communism All political and economic power rests in the hands of the cental gov’t

A few more terms… Authoritarian-dictator style rule. Collective-system used by Stalin in the 50’s-groups of peasants worked them, it failed. Heavy Industry-another of Stalin’s ideas-large amounts of capital was invested to produce items such as heavy machinery to be used in other industries.

Yet a few more terms to know… Continuum-a range with no clear divisions. Transition-period of change, economy moves away from centrally planned towards a market based economy. Privatize-selling state run firms to individuals.

Factory Farms are evil-eat organic and keep on rockin in the free world!!!!!!!!!!!!!!! THE END!

Flock of Seagulls