Types of Systems
What is a traditional economy?
A system based on long-standing cultural traditions and customs where resources are tied to communities.
How do traditional economies allocate resources?
Resources are allocated based on cultural customs and community needs.
What is scarcity?
The condition where limited resources are insufficient to satisfy all wants and needs.
What are the factors of production?
The resources needed to produce goods and services, namely land, labor, and capital.
Describe a command economy.
A system where a central authority (government) makes all economic decisions, controlling production and consumption.
What role does the government play in a command economy?
The government devises and implements plans for production and consumption.
Define trade-off.
A trade-off is the act of giving up one option in favor of another due to limited resources.
Define microeconomics.
The study of economic decisions made by individuals and businesses, focusing on smaller economic units.
What characterizes a market economy?
A system where buyers and sellers decide what to produce and consume, with individuals and firms having significant freedom.
How are prices determined in a market economy?
Prices are determined by the interaction of supply and demand among buyers and sellers.
What is opportunity cost?
The value of the next best alternative that is forgone when making a choice.
What is macroeconomics?
The study of economic phenomena at an aggregate level, such as national income, inflation, and unemployment.
What is a mixed economy?
A system that combines features of both market and command economies, with varying degrees of government involvement.
What are the constraints in a mixed economy?
Constraints include government regulations and market forces that influence resource allocation.
How do individuals confront scarcity?
By making choices and trade-offs about how to allocate their limited resources effectively.
Explain the difference between goods and services.
Goods are tangible items that can be touched or seen, while services are intangible activities that provide value.
Give an example of a country with a command economy.
North Korea or Cuba.
Explain how resource allocation differs in command and market economies.
In command economies, allocation is centrally planned by the government, while in market economies, allocation is driven by consumer choices and competition.
Discuss the implications of scarcity on consumer choices.
Scarcity forces consumers to prioritize their wants and make decisions about which goods and services to purchase.
What is human capital?
The skills, knowledge, and experience possessed by an individual that contribute to their productivity.