Notes

black market: An underground market, free of the regular market's regulations and guidelines.
central planning: Government makes nearly all of the economic decisions.
economic freedom: Buyers and sellers choose what they wish to buy and sell for profit.
economic system: The method a society uses to produce and distribute goods and services.
market: Any situation where buyers and sellers interact.
market failure: Instance where buyers and sellers cannot agree.
safety net: Restrictions set in place to keep the market from failure.
subsidies: Allotments paid, that do not have to be repaid.
economic system:3 questions it answers

what goods and services to produce
how to produce them
who will use the goods/services that are produced
the economic system relys on the society it is in

Traditional economies

traditional goal=economic security
use ritual.habit,or custom to answer eco.(economic) questions
men/ women have different roles
can be used by ethnic groups/ not a national country level
advantages

establishes eco. roles for all community members
stable and predictable
disadvantages

discourages innovation and new ways of doing things
stagnation/little progress
lower standard of living


command eco.

goal=eco. privacy
use central planning to large extent
role of gov.=makes all decisions,contol most product factors/land/most capitals/right to labor
command eco.: cuba

answering the three eco. questions
the govt. contols 90% of company
black market come from the economy
command economy advantages

dramatic change in short time
many basic need provided by govt.
jobs/ employment guaranteed
health care
subsidies for housing,transport,utilities, and food
Disadvantages

consumer needs/wants not met
difficult for economy to adjust to changing conditions
large bureacruacy
little incentive to work hard
innovation/entrepreneurship discouraged
markets=any situation where buyer/seller interact

yard sale
grocery store
eBay
new york stock exchange
nail salon
markets allow people to exchange what they have for what they want
Market economy

goal=economic freedom

people and private businesses own most factors of production
interactions between buyer/seller work answers out to the three eco. questions
what to sell= business poduce what will sell
how to produce= methods that keep cost low and profit high
who will use what is produced= consumers will use what they can afford to buy
circular flow diagram:Pure market economy

Factor market

households invest in businesses or will sell land labor and capital to businesses
get wages, rent, or interest
Product market

households spend money on firms
firms supply goods/ services
Market economy advantages

high level eco. freedom
lack of govt. interferance
encourages flexibility and innovation
variety of goods/ services
consumer satisfaction high
Disadvantages

only those with productive resources receive income
no safety nets
retierment
disability and unemployment insurance
health care
high degree of uncertainty
may result in market failures
eco. system advantages and disadvantages

Traditional
secure economic roles for all members
command
dramatic change possible in short time
market
flexibilty and high degree of eco. freedom
Trad. Disadvantage
little innovation/ low standard of life
command dis.
consumers not important/ little work incentive
market dis.
no safety nets=market failures