Traditional Economy
the allocation of scarce resources, and nearly all other economic activity
Advantage of a Traditional Economy
everyone knows which role to play
Disadvantage of a Traditional Economy
tends to discourage new ideas and new ways of thinking
Command Economy
a central authority makes most of the WHAT, HOW, FOR WHOM decisions
Advantages of a Command Economy (2)
- change direction drastically in a relatively short time
- many health and public services are avialable to everyone at little to no cost, regardless of income
Disadvantages of a Command Economy (5)
- doesn’t meet needs and wants of consumers
- doesn’t give people the incentive to work hard
- only requires a large decision-making bureaucracy
- doesn’t have flexibility to deal with minor problems
- new ideas discouraged
Market Economy
people and firms act in their own best interests to answer the WHAT, HOW, FOR WHOM questions
Advantages of a Market Economy (6)
- able to adjust to change gradually
- individual freedom
- lack of gov’t interference
- decentralized decision making
- variety of goods and services available
- high degree of consumer satisfaction
Disadvantages of a Market Economy (4)
- rewards only productive resources
- doesn’t produce enough public goods
- workers and businesses face uncertainty as a result of competition and change
- must guard against market failures
Social Security
a federal program of disability and retirement benefits that covers most working people
inflation
a rise in the general level prices
fixed income
an income that doesn’t increase even though prices go up
Capitalism
private citizens, many of who are entrepreneurs, own the factors of production
Free Enterprise
competition is allowed to flourish with minimal gov’t interference
Voluntary Exchange
the acts of buyers and sellers freely and willingly engaging in market transactions
Private Property Rights
privilege that entitles people to own and control their possessions as they wish
Profit Motive
the driving force that encourages people and organizations to improve their material well being
Competition
the struggle among sellers to attract consumers while lowering costs
Roles of Entrepreneurs (4)
- organize and manage land, capital, and labor
- start up new businesses
- the spark plug and the catalyst of the free enterprise economy
- attract other firms to the industry
Role of the Consumer
determine which products are ultimately produced
consumer sovereignty
role of consumer as ruler of the market when determining what types of goods and services are produced
Roles of the Government (4)
- Protector
- Provider and Consumer
- Regulator
- Promoter of National Goals
The Government as a Protector (3)
- enforce laws
- protect property rights
- enforce contracts
The Government as a Provider and Consumer (3)
- supplies defense services
- provide education and public welfare
- consume factors of production
