TAILIEUCHUNG - Lecture Economics - Chapter 29: Comparative economic systems

After studying this chapter you will be able to understand: Why did drivers in the former Soviet Union remove the windshield wipers and side mirrors whenever they parked their cars? What did Adam Smith mean when he said that an “invisible hand” promotes the public interest? If the Soviets were foolish to run their economy on five-year plans, why do some institutions in a capitalistic economy plan? | Chapter 29 Comparative Economic Systems Key Concepts Summary Practice Quiz Internet Exercises ©2000 South-Western College Publishing * In this chapter, you will learn to solve these economic puzzles: Why did drivers in the former Soviet Union remove the windshield wipers and side mirrors whenever they parked their cars? If the Soviets were foolish to run their economy on five-year plans, why do some institutions in a capitalistic economy plan? What did Adam Smith mean when he said that an “invisible hand” promotes the public interest? * What is an Economic System? The organization and methods used to determine what goods and services are produced, how they are produced, and for whom they are produced * What are the basic types of Economic Systems? Traditional Command Market * What is a Traditional Economy? A system that answers the What, How, and For Whom questions the way they always have been answered * What is the Benefit of a Traditional Economy? There is little friction among members because relatively little is disputed * What are the Disadvantages of a Traditional Economy? Restricts individual initiative Lack of advanced goods, new technology, and growth * What is a Command Economy? A system that answers the What, How, and For Whom questions by central authority * What is the Structure of a Command Economy? It has a pyramid structure * Consuming units Producing units Supreme planning agency Specialized planning agencies The Command Economy Pyramid * What are the Strengths of a Command Economy? Economic change can occur very quickly Social welfare can be enhanced * What are the Weaknesses of a Command Economy? Decision makers have the power to be absolutely wrong Quality and variety of goods suffer * 200 400 600 800 1000 $20 $60 $80 $40 Price per side mirror (rubles) Quantity of side mirrors (thousands per day) E Price set by planners Shortage of 400 thousand side mirrors S D Central Planners Fixing Prices

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