AP Microeconomics AMSCO Guided Notes
1.2: Resource Allocation and Economic Systems
AP Microeconomics Guided Notes
AMSCO 1.2 - Resource Allocation and Economic Systems
Essential Questions
- How do different economic systems allocate resources?
I. Types of Economic Systems
1. What are the three fundamental questions that define how an economic system operates?
2. What does the term 'means of production' refer to and why is control of it important?
A. Traditional Economy
1. How do traditional economies answer the three economic questions and what role do cultural traditions play?
2. Who controls the means of production in a traditional economy and why are these economies increasingly rare?
B. Command Economy
1. What is a command economy and how does a central authority answer the three economic questions?
2. Who controls the means of production in a command economy and what is the role of entrepreneurship?
3. What arguments do advocates make for command economies and why have they become increasingly rare?
C. Market Economy
1. How do individuals and firms answer the three economic questions in a market economy?
2. What role do private property and entrepreneurship play in a market economy and why is it considered efficient?
D. Mixed Economy
1. What is a mixed economy and how do most countries today combine market and command elements?
II. Resource Allocation in Different Economic Systems
A. Resource Allocation in Command Economies
1. How do command economies determine what goods and services will be produced and what motivates production?
2. How do central planners in command economies decide how goods and services will be produced?
3. How do command economies determine who consumes goods and services and what inequality might result?
B. Resource Allocation in Market Economies
1. How do market economies determine what goods and services are produced and what happens when the market rejects a product?
2. How does competition affect prices in market economies and what role does innovation play in production?
3. What determines consumption patterns in market economies and what environmental challenges result from this system?
C. Resource Allocation in Mixed Economies
1. How do mixed market economies determine what goods and services are produced and what role does government play?
2. How do governments in mixed market economies regulate production and what types of regulations do they impose?
3. What is a social safety net and why did the United States create Social Security?
III. Control of Scarce Resources in Economic Systems
1. What are key institutions and coordinating mechanisms and how do they function in economic systems?
A. Human Resources
1. How do traditional, command, and market economies value and treat human resources differently?
B. Natural Resources
1. How do traditional, command, and market economies access and use natural resources differently?
2. What environmental problems can result from poor use of natural resources in different economic systems?
C. Capital Resources
1. How does ownership and use of capital resources differ among traditional, command, and market economies?
Key Terms
economic system
means of production
traditional economy
command economy
market economy (capitalist economy)
mixed economy