Chapter 2 Section 1
Different economics systems have evolved in response to the
problem of scarcity.
Economics system
The method used by society to produce and distribute goods
and services.
THREE ECONOMIC QUESTIONS
WHAT goods and services SHOULD be produced?
HOW should these goods and services be produced?
WHO consumes these goods and services?
What goods and services should be produced?
Each society must decide what they should produce in order
to satisfy their needs and wants.
How should these goods and services be produced?
How do we use our resources to produce our goods and
services? For example should teachers have 20 students are
50 students in their classrooms?
Who consumes these goods and services?
Societies must decide how to distribute the goods and
services they generate. The distribution of these goods and
services is determined by how society distributes INCOME.
Factor Payments
Income people receive for supplying factors of
production.
Each society answers the question of distribution based on
it’s unique combination of social values and goals.
Economic Goals
Society pursues each of these goals, to some degree at the
expense of others.
Economic Goals
Economic
Efficiency
Economic
Freedom
Definitions of Goals
Making the most of resources
Freedom from government intervention
in the production and distribution of
goods and services.
Economic
Assurance that goods and services will be
Security and
available, payments will be made on
predictability
time, and a safety net will protect
individuals in time of economic disasters.
Economic Equity Fair distribution of wealth.
Economic growth Innovation leads to economic growth, and
and innovation
economic growth leads to higher
standards of living.
Other goals
Societies pursue additional goals such as
environmental protections.
Four Economic Systems
Traditional Economies
Relies on habit, customs or rituals
Revolves around the family
Work tends to be divided along the gender lines
Tend to stay relatively small and close
Market Economies
Decisions are made by individuals and are based on exchange
or trade
Are also called free markets or Capitalism
Centrally Planned
The Government alone decides how to answer all three key
questions
Also called Command Economies
Mixed Economies
Combination of Traditional Market and Centrally Planned
economies