Unit 1 Pt. 3 Flashcards
(20 cards)
3 Economic Questions All Economic Systems Must Answer
- What goods & services to produce?
- How will they produce them?
- Who will get them?
Traditional Economy
- Economic questions are answered by habits + customs
- Children work the same jobs parents worked
- Fear change!
Advantages of a Traditional Economy
- Sets forth certain economic roles for all members of the community
- Stable, predictable
- Revolves around family
- Communities stay relatively close + small
Disadvantages of a Traditional Economy
- Discourages new ideas, technology, + new methods
- Stagnation + lack of progress
- Lower standard of living - lack of modern conveniences
- Have few mechanisms in place to deal w/ disasters
Command Economy
The gov. answers the basic economic questions.
Advantages of a Command Economy
- Central authority commands the economy
- Little uncertainty over choice of career, where to work, or losing job
- Many basic education, public health, + other public services available at little to no cost
Disadvantages of a Command Economy
- Doesn’t meet wants + needs of consumers
- Requires large bureaucracy
- Lacks effective incentives to get ppl to work
- New + diff ideas discouraged; no room for individuality
- Centrally planned economies face problems for poor-quality goods, shortages, + diminishing production
Market Economy
- Economic questions answered by individual buyers + sellers
- “Free enterprise”
Advantages of a Market Economy
- Over time, can adjust to change
- Individual freedom for everyone
- Variety of goods + services
- Little gov. interference
- Decentralized
- High degree of consumer satisfaction
Disadvantages of a Market Economy
- Rewards only productive resources
- Doesn’t provide for ppl too young, too old, or too sick to work
- Businesses/workers face uncertainty as a result of competition + change
- No job guarantee
- Doesn’t produce enough public goods
- Defence, universal education, or health care
6 Features of the Cnd Market Economy
- Economic Freedom
- Competition
- Voluntary Exchange
- Profit Motive
- Private Property
- Self-Interest
3 Features of the Cnd Command Economy
- Gov regulation of some business practices
- Gov. limits certain choices
- Cannot buy + produce certain goods/services
- Gov. provides aid to the needy
Sole Proprietorships
A business owned by one person - known as the proprietor
- Range of responsibilities
- Funds come from savings, friends, family, bank loan
- Owner receives all profits + responsible for all losses
- UNLIMITED LIABILITY
Partnerships
A business in which 2 or more ppl share costs + responsibilities of owning+operating it
- Terms of partnership are recorded in the partnership agreement
- When 2 ppl form a limited partnership, the partners are only responsible for the funds they initially invested
- LIMITED LIABILITY
Corporations
A business granted legal status w/ rights, privileges, liabilities that are distinct
- Mutlinational: conducts business in several diff. countries
Types of Corporations
- Private corporations
- Public corporations
- Crown corporations
- Municipal corporations
Co-operatives
Owned by the workers/members who buy the products or use the services offered
- Business is motivated by service & not profit
Franchises
A franchise agreement can provide franchises w/
- A ready full-operational business
- Brand recognition that is appealing to customers
Strategic Alliances
Occurs when 2 or more businesses agree to commit particular resources to achieve a common set of objectives
- Alliance partners remain separate + entirely independent of each other
Mergers
When 2 or more companies join together
- One of the businesses usually wants to purchase a controlling interest in the other company
OR
- Both businesses have combined interests
