Economics Study Guide: Chapter 2

Question 1

Define economic system and name the 3 basic economic questions.

Answer 1

A system to determine how resources will be used for wants and needs of people.
1. What to produce
2. How to produce
3. Whom will get produced

Question 2

What are the 4 types of economic systems?

Answer 2

1. Traditional
2. Market
3. Command
4. Mixed

Question 3

Define traditional economy.

Answer 3

Economy where decisions are made based on customs and habits. Is found in rural, non-developed countries

Question 4

What are the advantages of traditional economy? Hint: There is 6

Answer 4

• Family/tribe based
• Simple/things done same way
• Works with natural environment
• Tradition determines who gets what
• Sharing/Support
• Bartering (Trading)

Question 5

What are the disadvantages of a traditional economy? Hint: There is 5

Answer 5

• Isolation
• Overwhelmed from large outside economies
• Unpredictability creates survival uncertainties
• Economic stagnation (no economic growth) from lack of progress
• Lower quality of life

Question 6

Define a command economy.

Answer 6

Economy where all decisions are made by the gov. - centrally planned - decisions made for you NOT by you

Question 7

What are examples of a command economy?

Answer 7

Cuba, North Korea, and China

Question 8

What are the advantages of a command economy? Hint: There are 4

Answer 8

• Industrial power boosted
• Citizens get free healthcare, education, etc.
• Low unemployment
• Equal income; no extremely poor people

Question 9

What are the disadvantages of a command economy? Hint: There are 9

Answer 9

• Corrupt leaders
• Freedom restricted
• Societal needs are ignored
• Limited to propaganda
• Cut off from world
• Production of low quality goods
• Takes a large government
• No competition offered
• Unbalanced amounts of goods

Question 10

Define socialism.

Answer 10

A more lighter version of communism

Question 11

Define Market economy.

Answer 11

Economy where buyers and sellers determine goods and services

Question 12

Example of Market Economy.

Answer 12

United States

Question 13

What are the advantages of a market economy? Hint: There are 6

Answer 13

• High degree of individual freedom
• Adjust change overtime
• Small degree of government interference
• Decentralized decision making
• Large variety of goods and services
• Private ownership of resources

Question 14

What are the disadvantages of a market economy? Hint: There are 3

Answer 14

• Does NOT provide for everyone
• May NOT provide enough basic goods/services
• High degree of uncertainty

Question 15

Define Mixed Economy.

Answer 15

Combines elements of all 3 economic systems

Question 16

Define transition.

Answer 16

A change

Question 17

List the CHARACTERISTICS of a TRANSITIONING COUNTRY.

Answer 17

1. Privatization - move from gov. owned to private owned.
2. Vouchers - buy gov. property
3. Loss of power - ruling class lose power to “new” entrepreneurs and capitalists (Russia’s big problem)
4. New incentives - BIG PROBLEM - fend for self
5. Automatic stabilizers/social welfare nets - needed for instability of becoming capitalist

Question 18

What type of economy/government does Russia have today?

Answer 18

ON PAPER, Russia is a federal democratic state.

Question 19

When did communism begin in Russia? How long did it last? When did it fall?

Answer 19

1912 - 1991 Lasted 79 years

Question 20

What was the Five-Year Plan?

Answer 20

Series of nationwide centralized economic plans designed to achieve rapid industrialization

Question 21

How many Five-Year Plans did Russia have?

Answer 21

13 Five-Year plans

Question 22

Who is Mikhali Gorbachev?

Answer 22

8th and final leader of USSR who introduced Perestroika (restructuring of Soviet Union) started transitioning away from communism

Question 23

Who is leader of Russia TODAY?

Answer 23

Vladimir Putin

Question 24

When did China become Communist? Under what leader?

Answer 24

1949 - Mao Zedong

Question 25

What was the Great Leap Forward?

Answer 25

Economic plan designed to transform China's agrarian culture towards an industrialized one

Question 26

What type of economy/government does China have today?

Answer 26

Operates under a socialist market economy, but is regarded as a one-party communist dictatorship

Question 27

Has Japan ever been communist?

Answer 27

NO - always has been a successful capitalistic market economy

Question 28

What has contributed to Japan's success?

Answer 28

- Technology advancement - Industrial Robots - Cars

Question 29

What is Tokyo considered?

Answer 29

Tokyo is the largest metropolitan area in the world

Question 30

Define population density.

Answer 30

Number of people per square mile

Question 31

What is South Korea's history?

Answer 31

In the aftermath of the Korean War, South Korea's economy was destroyed and it was considered the poorest country in Asia.

Question 32

What is South Korea's economy like now?

Answer 32

South Korea's economy is now the 12th largest economy in the world

Question 33

What has contributed to South Korea's success on the global economy? Hint: There are 3

Answer 33

- Leading Producer in automobiles (KIA and Hyundai) - Skilled production and exports - World trade in textiles

Question 34

What example does South Korea's economy give?

Answer 34

It is the perfect example of how a war torn economy can go through a successful transition