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1. Economic system in which the allocation of scarce resources and other economic activities are based on ritual, habit, or custom.
· Example: Africa.
· Advantages: Everyone knows which role to play.
· Disadvantages: Discourages new ideas and ways of doing things. Lower standard living of life.
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Traditional Econ.
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1. Economic system with a central authority that makes the major economic decisions.
· Examples: North korea, Cuba, Soviet Union.
· Advantages: Change direction drastically. Many health and public services available.
· Disadvantages: Ignore basic needs and wants. System gives people the incentive to fill their quotas instead of producing.
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Comman economy
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1. People make decisions in their own best interest.
· Examples: US, South Korea, Singapore, Austrailia, etc.
· Advantages: High degree of individual freedom, Adjusts gradually change overtime, small gov. interference.
· Disadvantages: Does not provide for everyone, Not enough basic goods, etc.
· High degree of uncertainty.
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Market economy
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Economic system where private citizens own the factors of production.
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Capitalism
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1. Systems that combine elements of all 3 types.
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Mixed economy
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mixed economic and political system in which gov. owns and controls some but not all of the basic productive resources.
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Socialism
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extreme form of socialism- political and economic system where all property is collectively not privately owned.
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Communism
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7 economic goals of the US.
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· Economic Freedom- Freedom to make own decisions
· Economic Efficiency-resources must be used wisely esp for good production.
· Economic equity- strong tradition of justice, impartiality, and fairness. Ex. Minimum wage.
· Economic security- protection from unemployment, etc.
· Full employment- economic system to provide as many jobs as possible.
· Price stability- stable prices
· Economic Growth- Lowest legal wage that can be paid.
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Lowest legal wage that can be paid.
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Minimum wage
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5 characteristics of Free Enterprise
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· Economic freedom- more than being able to buy things you want.
· Voluntary Exchange- the act of buyers and sellers freely willingly and engaging in market transactions.
· Private property rights- people control possessions as they please.
· Profit motive- people and organizations may improve their material well-being by making money.
· Competition- struggle among sellers to attract consumers.
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Role of entrepreneurs in free enterprise
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organizes manages land, capital, and labor in order to seek the reward called profit.
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Role of government in free enterprise
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Decide what is produced by how they spend their money. Spur development of new products by changing their wants.
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people and businesses carry on their economic affairs freely, but they are subject to some government intervention and regulation.
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Modified free enteprise economy
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