CHAPTER 4:

Quick Study 1

1. Q: Define economic system. What is the relation between culture and economics?
A: An economic system consists of the structure and processes that a country uses to allocate its resources and conduct its commercial activities. A nation’s economy tends to express individual or group values as reflected in its history and culture. However, no economy is focused entirely on the group at the expense of individuals or vice versa.

2. Q: What is a centrally planned economy? Describe the link between central planning and communism.
A: A centrally planned economy is one in which a nation’s government owns most of the land, factories, and other economic resources and plans nearly all economic activity. Karl Marx popularized the idea of central economic planning in the nineteenth century while promoting his belief in communism. Marx argued that market economies cannot be reformed—governments must be overthrown and economies replaced with more equitable “communist” systems.

3. Q: Identify several factors that contributed to the decline of centrally planned economies.
A: Factors included: (1) failure to create economic value, (2) failure to provide incentives, (3) failure to achieve rapid growth, and (4) failure to satisfy customer needs.

4. Q: Describe China’s experience with central planning, and the challenges it faces.
A: China always reserved a place for private initiative even in the early days of its implementation of communism in 1949. Families in rural areas owned their own land. Each family’s crop production in excess of that dictated by central planners could be consumed by the family or sold on the open market. In 1979, the Chinese government strengthened work incentives in agriculture by allowing families to grow whatever crops they wanted and to sell the produce at market prices. The government also legalized township