Personal Economics LT2A review--economic systems

What are the three economic questions?

• What is the supply? What is the demand? What is the price?

• What are the costs? What are the benefits? Who gets to decide?

• What will be produced? How will it be produced? For whom will it be produced?

In a command economy, who answers the three economic questions?

• the government

• producers (supply) and consumers (demand)

• the military

In a market economy, who answers the three economic questions?

• the government

• producers (supply) and consumers (demand)

• the military

One example of a command economy is...

• ...the U.S.--because businesses can decide what to make and people can decide what to buy.

• ...China--because companies produce many different types of products and the economy has grown rapidly.

• ...the former Soviet Union (U.S.S.R.)--because the government controlled supply and set demand.

One example of a market economy is...

• ...the U.S.--because businesses can decide what to make and people can decide what to buy.

• ...China--because companies produce many different types of products and the economy has grown rapidly.

• ...the former Soviet Union (U.S.S.R.)--because the government controlled supply and set demand.

One thing that is generally true about command economies is that they have...

• ...economic growth.

  (the amount of goods and services produced in an economy increases over time)

• ...economic security.

  (people are protected against natural or economic disasters)

• ...economic freedom.

  (people have freedom to choose the products and services they buy)

Answer explanation

Because of the guaranteed employment and mostly equal distribution of resources in command economies, people are well-protected against natural or economic disasters.

One thing that is generally true about command economies is that they DO NOT have...

• ...economic stability.

  (people have the resources they need, and these resources are consistently available and predictable)

• ...economic equity.

  (necessary resources and opportunities are distributed fairly and equally)

• ...economic freedom.

  (people have freedom to choose the products and services they buy)

Answer explanation

In command economies, central governments do most or all of the economic planning. Because of this, consumers do not have much freedom to choose products or services and the government takes care of production.

One thing that is generally true about market economies is that they have...

• economic growth.

  (the amount of goods and services produced in an economy increases over time)

• economic stability.

  (people have the resources they need, and these resources are consistently predictable and available)

• economic security.

  (people are protected against natural or economic disasters)

Answer explanation

In market economies, the self-interest of producers allows for more economic growth (because people generally know the market value of goods and services at a given time, and producers will work to improve the value of their products and the efficiency of their production).

One thing that is generally true about market economies is that they DO NOT have...

• economic growth.

  (the amount of goods and services produced in an economy increases over time)

• economic equity.

  (necessary resources and opportunities are distributed fairly and equally)

• economic freedom

  (people have freedom to choose the products and services they buy)

Answer explanation

In market economies, some people have better economic circumstances because of their family/birth, and income inequality (the gap between rich people and poor people) grows over time.

No pure (or complete) market or command economy exists in the real world. All economies fit in a spectrum from "command" to "market" because there are differing levels of governmental involvement in societies.

• True

• False