Types of Economies
The three basic economic questions
What goods and services should be produced?
How should these goods and services be produced?
Who consumes these goods and services?
Another term for "free market"
Capitalism; Free Enterprise
Who makes the choices in a free market system
Individuals
Who owns the factors of production in a command economy
The government
The total value of all final goods and services produced in a country in a given year
Gross Domestic Product (GDP)
Answers to the three basic economic questions are made by voluntary exchange in markets
Free Market
The two participants in the free market system
Households and firms
The main motivating force in the free market
Self-interest
This system can include a range of economic systems, allows ownership of some private property and can be part of a democracy
Socialism
A healthy economy has this unemployment rate
4-6%
The government, rather than the individual producers and consumers, answers the three basic economic questions
Command Economy; Centrally Planned Economy
The hope of reward or fear of penalty that encourages people to behave in a certain way
Incentive
The struggle among producers for the dollars of consumers
Competition
The world's first ever communist country
Soviet Union
A shared good or service that would be inefficient or impractical to make consumers pay individually or exclude those who did not pay
Public goods
An economic system that has some market-based elements and some government involvement
Mixed Economy
In this type of competition, producers compete to offer the lowest price for a good that is identical to goods made by other producers
Price Competition
Consumers have the power to decide what gets produced
Consumer Sovereignty
Unlike socialist economies, communist governments are always this
Authoritarian
The basic facilities that are necessary for a society and economy to function efficiently and grow, like roads, bridges and ports
Infrastructure
This type of economy relies around the family unit, is slow to adopt new ideas/technology and has a low standard of living
Traditional economy
A term that means the government generally should not interfere in the marketplace
Laissez Faire
In his book, The Wealth of Nations, he argued that competition and our own self-interest help keep the marketplace functioning
Adam Smith
Socialism and Communism were derived from the teachings of this German philosopher
Karl Marx
A specific situation in which the free market, operating on its own, does not distribute resources efficiently
Market failure