Unit Two, Test 2 Study Guide

Economic Systems and Decision Making

1. What are the six general goals that every economic system will try to reach.
Economic Freedom, Economic Efficiency, Economic Equality, Economic
Security, Economic Growth, Price Stability.
2. What are the four types of economic systems that can be found around the
world? Mixed, command, market, traditional
3. What are the differences between all four of the economic systems?
 Traditional Economy-economic activity stems from ritual, habit,
or custom, roles are defined by customs or elders.
 Command Economies-the central government make the
economic decisions.
 Market Economies an arrangement where buyers and sellers
interact to decide the prices and quantities of goods and services.
 Mixed Economies- is an economic system that has some
combinations of traditional, command, and market. It’s also
known as modified free enterprise economy.
4. How does a market economy promote progress? By always making new
and better products in order to keep customers coming back.
5. What is the role of the consumer in an economic system? The customer
rules the market.
6. Which country is a good example of a command economy? North Korea
7. What are the advantages and disadvantages to a traditional economy?
 Community works together to support the entire
 Everyone knows their role and what to produce
 Everyone knows how to produce what they need
 For whom question is answered by customs
8. Who is Karl Marx? A German economic philosopher believed that all
class struggles were between workers and property owners. This would
eventually lead to depressions and the periods of prosperity.
9. What are the three basic questions every economic system should answer?
 What to produce?
 How to produce?
 For whom to produce?
10. Who is Adam Smith? Considered the “Father of Economics.” His book
“The Wealth of Nations” (1776) elevated economics to the status of
science.
11. Why are entrepreneurs important to the free enterprise system?
Entrepreneurs – People who organize and manage land, labor, and
capital to make profit, and everyone benefits when the entrepreneurs is
successful.
12. Define economic system. An organized way a society provides for the
wants and needs of a people.
13. What role does the government assume for an economic system? The role of
people who organize and manage land, labor, and capital to make
profits.
14. Which philosophy had a goal that stated the end result should be that society
should not need to have a government? Adam Smith
15. What is Consumer Sovereignty? The customer rules the market.
16. What is the difference between a pure market economy and a free market
economy? Market economies exist because no one nation is entirely self-
sufficient, Pure market economy is an economy in which all resources
are owned by individuals.
17. What is the difference between communism and socialism? Communism is a
state of economic and political affairs where everyone would contribute
according to his or her abilities and consume according to his or her
needs.
18. What makes the mixed economic system so different from the other three
economic systems? Mixed economy is an economic system that has some
combination of traditional, command, and market.
19. What are the advantages and disadvantages of free enterprise capitalism?
 Advantage: Absence of Red Tape
 Advantage: Freedom to Innovate
 Disadvantage: Limited Product Ranges
 Disadvantage: Danger of Profit Motive
20. Which economic term thrives on competition? Capitalism, leaders have
allowed the economy to transition into capitalism because they offered
markets, competition, profit, and international trade.
21. What are the advantages and disadvantages of a command system?
 Advantages: Economy can change direction drastically in a short
period of time.
 Advantage: Health and public services are available to everyone
at little or no cost.
 Disadvantage: Not designed to meet wants of consumers
 Disadvantage: There is little incentive to work hard, a large
decision-making bureaucracy is required.
22. Which country is a good example of a mostly market economy? Singapore,
Hong Kong, New Zealand, Switzerland, Australia.
23. Give me an example of what a traditional economy would be. Economic
activity stems from ritual, habit, or custom; roles are defined by
customs of elders.
24. What does “lassize-faire” mean? A restricting the role of government in
the economy-enact lassiez-faire policy let them do as they please.
25. Why would a government who wanted to be communistic need to use
socialism to get to a stable environment? Because using socialism helps a
social and political belief that wealth should be distributed evenly
through a democratic society.
26. What is an example of a variety of goods? Shoes
 27. Give the definition of Capitol Good and Consumer Good? Capital goods are
tools or goods such as machinery or equipment that is used by
businesses to produce other products. Consumer goods are goods
intended for final use by individuals, such as shoes, a shirt or a car.

Lecture guides that you will need:

Unit Two/ Part One: Economic Systems and Decision Making
Unit Two/ Part Two: Economic Systems and Decision Making
Unit Two/ Part Three: Economic Systems and Decision Making