Economic Goals and Three Fundamental Questions 1. How do societies choose goals for their economic system? 2. What are the 6 goals of a free market system? 3. Scarcity forces us to think about what three fundamental questions? • Societies choose different economic systems and different goals • Goals based on values, collective judgments on what’s most important economically – What to accomplish? – What’s the end result? Free Market Goals 1 & 2 ECONOMIC FREEDOM • Minimal gov’t intervention • Personal economic freedoms – – – – – Econ. Choices Property ownership Start businesses Spend/save Job choice • • • • ECON. EFFICIENCY Producing the most goods/services with limited resources High income based on skill of job Incentive to reduce waste, lower costs, increase profit Achieve best possible gov’t services (schools…) Goals 3 & 4 ECON. SECURITY • Some gov’t intervention prevents some from being exploited • Protection against economic hardships, based on society’s decisions • Funding provided by society for certain aid programs • • • • ECONOMIC EQUITY Difficult to define, deals with what people perceive as “fair” or “unfair” Which people are better/worse off in a system? Who gains/loses? Is there an equal opportunity for each person to participate/benefit from system? Goals 5 & 6 Full Employment & Stable Prices • Goal to achieve low unemployment • Avoid raising prices for goods and services too high • Price rise=more money to buy goods/services ECONOMIC GROWTH • Standard of living— level of econ. wellbeing of people • Necessary to provide more jobs and income for people Three Fundamental Questions • What to produce? – Requires economy to decide mix/amount of goods/services it will produce (make) – Due to scarcity, forces U.S. to feature consumer sovereignty • How to produce it? – Economy must decide which combination of technology, resources to use in producing g/s – Will production be more/less capital intensive? – Education plays a key role in ability of workers to perform their jobs • For whom to produce? – Economy must decide which people receive g/s—concerns economic equality – Society must have a method to decide who will be rich, who will be poor—this is price Check yourself… 1. Why is the economic goal of security important when the economy experiences a downturn? 2. Why must a society answer the three basic economic questions?