COMPARATIVE ECONOMIC SYSTEMS: PAST, PRESENT, AND FUTURE BEFORE YOU BEGIN

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1 Name Date Period Chapter 19 COMPARATIVE ECONOMIC SYSTEMS: PAST, PRESENT, AND FUTURE BEFORE YOU BEGIN Looking at the Chapter Fill in the blank spaces with the missing words. Wrote of and Wealth of Nations Division of labor leads to Self-interest is a Adam Smith keeps prices low Wealth consists of and services exchange makes people better off Government should provide, justice system, and public goods Study Guide 207 NTC/Contemporary Publishing Group, Inc.

2 Name Date Period Wrote The theory of Karl Marx Workers will revolt against states Capitalist will laborers in search of value is value beyond what laborers are paid Study Guide 208 NTC/Contemporary Publishing Group, Inc.

3 Name Date Period Chapter 19 Outlining the Chapter Look over the chapter and pay attention to the main topics. As you look through each section, fill in the missing terms in the outline. I. Two Visions Shape Two Economic Systems A. A economic system is based on customs and beliefs that have been handed down from one generation to the next. 1. Most people who live in traditional economies live at a level and often use primitive tools. 2. An example of a traditional economy would be the system, where the king owned all land. 3. Another type of traditional economy is the and gathering society. 4. Some traditional economies the accumulation of personal wealth by redistributing goods from those who have to those who do not. 5. There are still traditional economies in many parts of the world that resist change and continue to maintain economic relationships going back hundreds of years. B. enterprise and are two dominant economic systems. 1. Some nations economies fall naturally into one category or the other, but most nations are. C. Capitalist and socialist visions 1. The socialist vision produces. 2. The capitalist vision produces, or. D. The two visions as they relate to the market. 1. Price a. The capitalist thinker sees price as goods and services, conveying, and serving as an for buyers and sellers to respond to information. b. A socialist thinker views price in a free enterprise economy as being set by with vast economic. The socialist thinker likes to price to reduce the economic power that he or she believes sellers have over consumers. Study Guide 209 NTC/Contemporary Publishing Group, Inc.

4 Name Date Period 2. Competition a. A capitalist thinker believes that competition is under free enterprise. Competition between producers will force them to offer the product to consumers for the price. b. The socialist thinker sees competition between producers. The marketplace is controlled by big interests dictating to people (through advertising) what they will buy and at what price. 3. Private Property a. The capitalist thinker places value on private property. i. Capitalists believe that if you own something yourself, you are more likely to take care of it than if it was owned communally by you and others or was owned by the government. ii. The capitalist thinker also believes that having private property encourages individuals to use their resources in a way that others. b. The socialist thinker believes property owners will end up having more political than those who do not own property. i. It would be better for to own most of the nonlabor property in the economy (such things as factories, raw materials, and machinery). ii. Government would be more likely than private individuals to make sure this property was used to the many instead of the few. 4. Exchange a. The capitalist thinker believes that both the buyer and the seller from an exchange. b. The socialist thinker often believes that one person in an exchange is made better off at the other s. E. The two visions as they relate to government 1. The socialist thinker believes government decision-makers what is in the best interest of society as a whole. The capitalist thinks government decision-makers respond to well-organized special interest groups and not to the unorganized members of the general. 2. The socialist thinker sees the goal of government decision makers as doing the. The capitalist thinker sees the goal of government decision makers as getting and to office. Study Guide 210 NTC/Contemporary Publishing Group, Inc.

5 Name Date Period 3. The socialist thinker believes that when government decision makers make a mistake, it is because they did not have all the facts. The capitalist thinker believes that when government decision makers make a mistake, it is likely that the mistake was motivated. II. Adam Smith and Karl Marx A. Adam Smith: A brief biography 1. Adam Smith was born in 1723 in Kircaldy,. 2. He went to the University of (in Scotland) when he was 14 years old. Later, he attended Balliol College at Oxford University in England. 3. In of, published in 1759, he discusses the moral forces that restrain selfishness and bind people together in important cooperative endeavors. 4. An Inquiry into the Nature and Causes of the of, published in the 1776, is ranked as one of the most important and influential books in the history of the world. B. Smith on self-interest 1. Smith saw self-interest as a the desire to better ourselves that is at the heart of what makes us tick. 2. Smith believed that our self-interest prompts us to work, take, and others through our activities. 3. Smith believed that if a person wanted to serve his self-interest, he had to serve others first. 4. Smith says, Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want... C. Wealth: Not money but goods 1. Smith disagreed with, who believed that the more money (gold and silver) a country had, the wealthier it was. 2. Smith believed a country s wealth consisted of how many goods and services its people consumed. D. The division of labor 1. Smith believed that the division of labor (when people specialize in tasks) was a major factor leading to the of nations. 2. We become proficient at a task and we do not lose time moving from one task to another. 3. And when we do something over and over again, we begin to think of how we can make the task easier. Study Guide 211 NTC/Contemporary Publishing Group, Inc.

6 Name Date Period E. Voluntary exchange 1. Smith argued that both parties to a voluntary exchange must, or they will not enter into the exchange. 2. He wanted people in different countries to be able to with each other without any government prohibitions. F. Competition 1. Smith thought of competition as a process where producers battled each other for the dollars of the buying public. 2. Competition keeps prices and quality. G. What should government do? 1. The government should provide. 2. The government should establish a of. 3. The government should establish certain works and institutions. H. Karl Marx: A brief biography 1. Marx was born in 1818 in the town of, Germany. 2. Marx wrote many articles for the New York Tribune. His major work,, is one of the most important and influential books in the history of the world. I. The basics of Marx s thoughts 1. The of holds that all value in produced goods is derived from labor. 2. Marx argued that the value of a commodity is determined by the necessary time embodied in the commodity. 3. Marx believed that the owners of factories and business workers by paying them less than they were worth. The value over and above what the laborer was paid Marx called value. J. Marx on economic development 1. Primitive communism is characterized by ownership of property; people cooperate to earn a meager living from nature. There is no value and no. 2. Slavery: At some point, people are able to produce more than they need to consume for survival. Some people will others and garner the value. When this occurs, class arises. 3. Feudalism was much like. The serf was permitted to work a few days per week on the land allotted to him, but on other days he was required to work on the lord s land. Study Guide 212 NTC/Contemporary Publishing Group, Inc.

7 Name Date Period 4. Capitalism: Marx believed that capitalists would increasingly workers in the search for higher. 5. Dictatorship of the workers, or, would arise through a revolt and overthrow the capitalist state. Exploitation of the workers would then cease. 6. Pure communism remains after the dictatorship of the workers eventually wither[s] away. K. The critics of Marx 1. The labor theory of value is faulty. 2. There is no large reserve army of the. 3. Most workers earn an above-subsistence. 4. Marxist revolutions have not appeared in the places Marx expected. III. IV. An Example of Socialism in the 20th Century A. Command-economy socialism in the former Soviet Union was such that government was involved in almost every aspect of the economy. 1. was the central planning agency. It drafted the economic plan for the Soviet economy. a. The critics of central economic planning say that the economic planners cannot take into account as much relevant as a market does. b. Private individuals, guided by rising and falling and by the desire to earn, are better at satisfying consumer demand. 2. Under command-economy socialism in the former Soviet Union, besides determining the supply of a particular good, the economic planners also set its. a. As long as price is centrally imposed, or are the likely result. Moving from Socialism to Free Enterprise A. When a nation moves away from command-economy socialism to free enterprise, we can expect prices to. B. The of certain firms and jobs C. A socialist nation must turn property into property to move to free enterprise. D. Many of the nations attempting to move from socialism to free enterprise lack infrastructure, which makes the move difficult. Study Guide 213 NTC/Contemporary Publishing Group, Inc.

8 Name Date Period E. Attitude: Free enterprise requires that people are willing to take business, and so on. 1. It is sometimes reported that the people of the formerly socialist nations lack initiative, that they don t want to take risks, and that they are used to having government take care of them. F. Free enterprise can t survive without the of. V. Government and the Economy A. Government can constrain economic activity in many different ways: 1. : Government can limit the free flow of goods and services between countries by imposing high and. 2. Taxation: Government limits entrepreneurship and dampens incentives to work if it taxes the average taxpayer at a tax rate. 3. Government of business: If government owns many businesses or entire industries, this may constrain the ability of private individuals to own and operate businesses. 4. Government ownership of 5. Government expropriation of 6. Government can constrain individuals from starting new businesses by making it difficult to obtain a business. 7. When government imposes and controls, it prevents individuals from making trades at mutually agreed-upon prices. Study Guide 214 NTC/Contemporary Publishing Group, Inc.

9 Name Date Period Chapter 19 Building Vocabulary Match the term with the correct definition. a. surplus value b. labor theory of value c. traditional economy d. mixed economy e. primitive communism f. Karl Marx g. feudalism h. Gosplan i. infrastructure j. vision k. mercantalists l. Adam Smith 1. Under Soviet command-economy socialism, the planning agency that had the responsibility of drafting the economic plan for the country 2. The basic structures and facilities on which the continuance and growth of a community depend. Examples are interstate highways, bridges, and communication networks. 3. In Marxist terminology, the difference between the total value of production and the subsistence wages that are paid to workers. 4. Characterized by common ownership of property; people cooperate to earn a meager living from nature. There is no surplus value and no exploitation. 5. Believed that the more money (gold and silver) a country had, the wealthier it was 6. Economies that contain parts of capitalist and socialist elements 7. An economic system sometimes compared to slavery. The serf was permitted to work a few days per week on the land allotted to him, but on other days he was required to till the lord s land. 8. Holds that the value of all commodities is equal to the value of the labor used in producing them 9. Wrote many articles for the New York Tribune. His major work, Das Kapital, is one of the most important and influential books in the history of the world. 10. An economy system in which the answers to the three economic questions are based on customs, traditions, and cultural beliefs Study Guide 215 NTC/Contemporary Publishing Group, Inc.

10 Name Date Period Chapter 19 AS YOU STUDY Illustrating Economic Skills This chapter compares the major differences between socialist thinkers and capitalist thinkers. The chart will be used to illustrate these differences. In the blanks, explain the differences with respect to prices, competition, private property, exchange, government, and the early writers responsible for each view. Socialist Thinker Capitalist Thinker PRICES COMPETITION PRIVATE PROPERTY Study Guide 216 NTC/Contemporary Publishing Group, Inc.

11 Name Date Period EXCHANGE GOVERNMENT EARLY WRITERS AND THEIR WORKS Study Guide 217 NTC/Contemporary Publishing Group, Inc.

12 Name Date Period Chapter 19 Using Economic Concepts The diagram illustrates the main steps, or barriers, of moving from command-economy socialism to free enterprise. Complete the blank spaces in the diagram. When a nation moves Some industries and jobs will The socialist nation must away from commandeconomy be. transition socialism to free Firms that produce goods property into enterprise, prices will and services that are not in property. likely. large demand will see low. These firms will production and some workers. Those workers must search for jobs in other, which may take some time. Many of the nations attempting to move from socialism to free Free enterprise requires that enterprise lack people have the attitude to take. business, and so on. Moving from socialism to free enterprise requires developing this, such as highways, Free enterprise must have bridges, telephone the of systems, and so on. to survive. Study Guide 218 NTC/Contemporary Publishing Group, Inc.

13 Name Date Period Chapter 19 AS YOU REVIEW Practicing for the Test Multiple Choice: Choose the letter that best answers the question or completes the statement and write it in the space at the left. 1. Peoples self interest motivates them to want to do well for themselves. In a market economy, one can only do well for himself if he does well for others by producing things that others want to buy. This best describes the ideas of. a. Karl Marx b. the value theory of labor c. Adam Smith d. mercantilism 2. A is an economy in which the customs and beliefs are handed down from one generation to the next. a. feudalistic economy b. socialistic economy c. traditional economy d. capitalistic economy 3. A capitalist believes that price. a. rations goods and services b. does not convey information c. exploits consumers d. should be controlled by government 4. The believed that the more money people in a country had, the wealthier the country. a. communists b. mercantalists c. capitalists d. socialists 5. According to Marx, the is the difference between the total value of production and the subsistence wages paid to workers. a. surplus value b. wealth c. value of labor d. slavery 6. The socialist thinker believes that is dictated by businesses with economic power. a. competition b. price c. a price ceiling d. profit Study Guide 219 NTC/Contemporary Publishing Group, Inc.

14 Name Date Period True or False: Place a T in the space if the statement is true, and an F if the statement is false. 1 According to Adam Smith, a country that has more money means it has more wealth. 2. The socialist thinker believes that private property ends up in the hands of a few people who have a lot of power. 3. There is specialization at a fast food restaurant: a person cooks, another person cleans the restaurant, another person works the cash register, and so. This describes the division of labor. 4. According to Marx, under capitalism the relationship between worker and capitalist was one much like that of slave and master. Short Answer: 1. According to Adam Smith, is self-interest good or bad for society? Explain your answer. 2. What are the problems of central planning in an economy? 3. In the real world, we see that many centrally planned economies have shortages and surpluses of goods. Explain why this occurs. Study Guide 220 NTC/Contemporary Publishing Group, Inc.