Magruder’s American Government
1st Edition
ISBN: 9780133306996
Textbook solutions
All Solutions
Section 12-1: Types of Economic Systems
Exercise 1
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The resources that a country possesses and the way they are used are the most important factors for its economic development.
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There are 3 basic resources that represent factors of production:
**1. Land** – all natural resources
**2. Capital** – all resources created by man and used to produce goods and services
**3. Labor** – human resource
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While it would be ideal for one country to abound in all three groups of resources, this is usually not the case and the country needs to find a way to overcome it.
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One way is trade and exchange with other countries. In this way, a country can access the resources it lacks with the help of the resources it has in abundance. One of the disadvantages of this method is that this way the countries become dependent on each other.
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If the country wants to be as independent as possible, it must find a way to deal with the lack of resources on its own. One way is to turn to the resources it possesses and to maximize their utilization.
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For example, if a country owns a lot of fertile land, it can opt for agriculture as the basis of its economy. But if the country is hilly and arid and there are no conditions for agricultural development, and on the other hand it has a lot of manpower, it could turn to modern technologies. If that country invests in IT infrastructure and education, it could provide people with employment in the IT sector and thus use its human resources to overcome natural limitations
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A country with little land and few natural resources can still be independent of others and makeup deficits. What makes a healthy economy is entirely up to the country. Even though trading, business, and help from other countries is vital, that does not take away from the country having the ability to create surplus on its own. Furthermore, the key to success is utilization, hard work, strategizing, resources, goods and service, and productiveness – a country can dictate the outcome on all of the stated.
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If the **natural, labor, and capital resources** are efficiently used, they represent a golden ticket for the countries economy. There are multiple ways a country can act to increase the economy. What makes every economy is the people who work and contribute to the system and its segments – this automatically boosts the economy. Out of the human labor, a country can then make a gain in capital resources. They are the resources coming from the labor that make and provide services and goods to the citizens, who then, in turn, use them and keep contributing to the system.
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Another way a country can make increase its economic value is through the **natural resources** the land offers. A country has to recognize and focus on its strengths and natural resources to utilize them and make an economic gain. It is a well-known fact that one of the wealthiest states, the United Arab Emirates, got rich from the production of services and natural oil resources.
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These ways can benefit the economy so the country can use the money to make advancements in technology, successful business deals and trades with other countries, and all of the actions that benefit its economy.
Exercise 2
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A **monopoly** is characterized by having restricted access to goods, thus controlling the supply and trade of commodities. Having the capability to control the market can be a two-edged sword.
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**Monopoly primarily affects the consumers with the prices it sets**. If there are not enough demanded goods, and if a monopoly acquires those goods, it can set the price as high or as low as it wants to – it is usually of a higher price. Thus, the ability of a monopoly to set the prices indefinitely can be the most detrimental factor to the consumers.
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Monopolies can also restrict the output to the market. Higher prices can be charged, especially when compared to a competitive market. Sometimes monopolies can even refuse their services.
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To conclude, a **monopoly can have a positive and negative impact on consumers**. That entirely depends on monopoly’s politics and the prices they set. It can also create a positive outcome for the consumers if the prices are reasonable.
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A **monopoly** exists when there is only one supplier of a certain product on the market.
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This situation may be due to the fact that the product is the original unique product of that supplier or if the supplier has become so economically strong that it has excluded all other suppliers from market competition.
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In both cases, as the only supplier of a certain product, he can dictate all the conditions of its sale, and the most important parameter that affects consumers is the **price**. The monopolist dictates the price and the buyer can only decide whether to buy the product or not.
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In cases of non-basic products, the monopolistic situation is not so important, consumers will simply decide not to buy the product in case of too high a price and the supplier will have to adjust the price after a while if he does not want his business to fail.
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In someone establishes a monopoly over a product that belongs to the basic necessities of life, people will be forced to buy the product regardless of the price, and thus they will certainly endanger their finances and quality of life.
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For these reasons, governments very often pass anti-monopoly laws, which prohibit one of the suppliers from becoming a monopolist and thus put consumers at a disadvantage.
Exercise 3
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**Ash-can socialism** is when the government takes the initiative in unprofitable business. Those businesses are usually facing a crisis, didn’t follow up with modern technology, had a poor strategy, didn’t manage to “survive in the competition, and, generally, couldn’t adapt and execute.
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The government is driven to participate in the ash can socialism (even though a capital-based society does not characterize it), perhaps because the **State’s founding value is prosperity**, and this just might be an exception for that.
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Plus, with its help, the government might save hundreds of jobs, support the region’s economy by boosting efficiency, and save an industry that is perceived to be useful in the future.
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Moreover, some industries, sectors, and companies might not be as profitable, but they can be of great use. The government can then develop an interest to intervene and preserve, thus upholding the national interest. For example, President Trump intended to brace the rural industry, so he promised to help keep the coal mines open even though they were not necessarily profitable.
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**“Ash-can socialism”** means government-run certain unprofitable businesses that would do much better if they were in the private sector.
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It also refers to a situation in which the government itself organizes certain activities that private sector companies would not engage in because they are unprofitable.
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Although this way of governing is not in line with capitalist principles, governments often choose to take such steps in order to protect some public goods, values or issues.
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For example, if they are in question some basic values of society, such as education. Although there are private schools that function much better than public ones, the government will still maintain a system of public schools so that it can influence education, implement certain projects through schools, and control certain aspects of students’ lives.
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Also, there are some issues that are important for citizens, such as public transport. Although it may be unprofitable for the private sector in some areas, the government will not allow it to fail and may subsidize it in order to survive.
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Further, if there is an industry that is generally unprofitable, but is very important for an area of the country or employs a large number of people from that area, the government may decide to maintain it with subsidies.
Exercise 4
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The main difference between communism and socialism regards the control over property and economic resources.
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In **communist countries**, economic resources and properties are owned by the government. While in **socialist countries**, the economic resources are allocated by an elected government and are shared with the citizens equally.
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What is similar to these two systems is the collective cooperation in running the country. However, in communism, the government runs and controls the resources and property. Socialism, on the other hand, has private property, but only in the placement of consumer goods and generates its own, for example, health care and educational system.
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**Socialism and communism** both appear as the opposite and alternative to capitalism.
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While in capitalism there is a free market and a weak role of the state in the economy, socialism and communism imply the active participation of the state in economic processes.
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However, socialism and communism differ in the desirable degree of state interference in the country’s economy.
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Communism, on the one hand, believes that the state should have a commanding role in the economy and implies central planning of the economy. Socialism, on the other hand, implies central planning only in certain areas.
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While communism implies that all property in country belongs to the state, in communism there is mostly private property.
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Under communism, the state provides key things for the lives of citizens, such as the education system or the health care system, while under socialism, the state finances these areas from high taxes.
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Also, workers in communism have very little room for self-organization, while in socialism there are strong unions that fight for the best possible protection of citizens.
Exercise 5
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**Mixed economy** implies the existence of the private sector in the state, but also certain government interventions on certain economic issues.
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In this type of economy, both the public and private sectors have important roles, so the government is involved in regulating both to a certain extent.
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For this reason, **bureaucratic** elements of governance can be found in both the public and private sectors.
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A **mixed economy** is characterized by the combination of government and private enterprises, or we can say sectors. So, a mixed economy is an economy that has some elements of the free market and some elements of socialism. Some industries are under the government’s control, while some make the free market.
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**Bureaucracy’s** purpose is to maintain order, integrity, and control within its subject. For those matters, it can administer regulations to help achieve a common goal.
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Both private and governmental sectors can, to some extent, use an administrative body. Therefore, a **bureaucracy can be found in both governmental and private sectors**.
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