1. Chapter 24, Lesson 2

2.  In a market economy, individuals make the economic decisions.  Private individuals, not the government, own the factors of production including natural resources, capital, labor, and entrepreneurship.  In a way, a market economy runs itself.  Supply and demand combine to set the prices of goods and services.

3.  Market economies give people a lot of freedom.  People are free to own property, control their own labor, and make their own decisions.  Sellers compete with each other to attract the most buyers, and buyers compete with each other to find the best prices.  Most countries with high GDPs per capita have a market economy, so individuals tend to make more money.

4.  Although market economies enjoy a high degree of success, they do not grow at a steady rate.  While periods of growth are much longer than the periods of decline, people can hurt in the down times.  Some even lose their jobs.  Another problem is that businesses, driven by profit, might not give workers good working conditions or high wages.  The profit motive can also result in neglect in other areas, like being environmentally conscious.

5.  The opposite of a market economy is a command economy.  In a command economy, the government owns the factors of production.  It has powerful planning agencies that make the major economic decisions like what goods will be produced, how they will be produced, and to whom they will go.  Most command economies have their roots in a system known as socialism, the belief that the means of production should be owned and controlled by society.  They feel that this system distributes wealth more equally among all citizens.

6.  Command economies are not very efficient.  For instance, Cuba and North Korea, both of which have command economies, have low GDPs per capita.  People face shortages of goods and services as well as poor quality products.  In recent years, several former command economy in Eastern Europe and Russia have decided to make the switch to market economies.  Privatization is the process of changing state-owned businesses, factories, and farms into ones owned by private citizens.  Although many of these countries struggled with the change, China’s gradual approach has brought them much economic success.

7.  The U.S. economic system today is not a pure market economy.  Although it is more oriented toward a market economy, it combines elements of both.  For instance, the government does provide some goods and services such as roads, bridges, and schools.  The government also regulates some businesses to ensure competition and to make sure workers and consumers are protected.

8.  Standard of living is measured by such things as having plentiful goods and good health care.  Countries with high standards of living are called developed countries, and only about 35 of them exist in the world today.  Some countries have taken steps to join this group such as building export industries, but they have not yet reached the level of output of developed countries.  They are called newly industrialized countries, and examples include China, India, and Mexico.  A large number of countries, however, do not have advanced economies and therefore have low GDPs per capita.  They’re called developing countries

9.  One major obstacle is population.  When the population grows faster than the GDP, GDP per capita goes down.  Countries with the fastest population growth tend to have the lowest GDP.  Another challenge, more people means more jobs need to be created.  This leads to a rise in trade barriers in order to protect domestic jobs.  Developing countries often lack the ability to extract, use and sell their resources.  Lack of access to the sea also hinders the ability to export goods.  In a single resource economy, a nation depends on a single export for economic growth.  War is another challenge faced by developing countries.  Fighting damages resources, kills and scares away the populace, causing productivity to stop.  As a result more countries have difficulty investing in their economies.

10.  Many developing countries face debt.  Many borrowed large sums of money to encourage economic growth.  They have to use their income to pay back the debt.  Corruption is also a big challenge.  Leaders stole money that was meant to pay for the economic development projects or other projects to help their people.  Corrupt leaders make decisions for themselves not the country.  Many developing countries have to deal with two or three serious problems at the same time.  As a result, economic progress has been difficult for them to achieve.