ECONOMIC
SYSTEMS
Chapter 2
ANSWERING THE
THREE ECONOMIC
QUESTIONS
Chapter 2 Section 1
Economic Systems
Remind me – why can’t we produce/have all
that we want and need?
SCARCITY
• Economic system: the method used by a
society to produce & distribute goods &
services
• System used depends on society’s goals &
values
Three Key Economic Questions
Every society must answer these 3
questions:
1.What goods & services should be
produced?
2.How should these goods & services
be produced?
3.Who consumes these goods &
services?
Three Key Economic Questions
1.What goods & services should be
produced?
• Each society decides what to produce to
satisfy its wants and needs
• Each production decisions a society
makes comes at an opportunity cost
Three Key Economic Questions
2. How should goods & services be
produced?
•
•
How to use our resources to produce
goods and services?
All things we want and need require
land, labor, and capital
Three Key Economic Questions
3. Who consumes these goods &
services?
•
•
•
Each society must decide how to
distribute goods & services available
Answer determined by how a society
distributes income
Factor payments: income people
receive for supplying factors of
production
Economic Goals & Societal Values
Economic Goals
Economic Efficiency Making the most of resources
Freedom
from government
intervention in
DON’T
COPY
THIS
the production and distribution of goods
& services
DOWN
RIGHT NOW!!
Economic Security
Assurance that goods and services will be
& predictability Page
available,
payments
will be made on time,
25
of
your
and a safety net will protect individuals
in times of economic disaster
book
–
copy
down
Economic equity
Fair distribution of wealth
or&study
from
there
Economic growth
Innovation
leads to
economic growth, and
Economic Freedom
innovation
economic growth leads to a higher
standard of living
Other Goals
Societies pursue additional goals, such as
environmental protection
Economic Goals & Societal Values
Economic Efficiency
• Most societies try to maximize what
they can get for resources they have
• Best way to use resources, to produce,
and to get goods to consumers
Economic Freedom
• CHOICE
• Most nations allow different degrees of
economic choice
• There are limits everywhere!
Economic Goals & Societal Values
Economic Security & Predictability
• Ideally – reassure people goods & services
will be available when needed AND can
expect payments on time
• Security of knowing help is available when
needed – want safety net from gov’t
Economic Equity
• What is a fair share? Should allowable
consumption be based on production?
• Not all jobs valued equally …
Economic Goals & Societal Values
Economic Growth & Innovation
• Nation’s economy must grow for standard
of living to improve
–
Level of economic prosperity
• Technological innovations lead to
increased efficiency & new goods/services
Additional Goals
• Environmental protections, full
employment, universal health care
Economies & Values
ECONOMIC SYSTEMS
TRADITIONAL
ECONOMIES
Economies & Values
Traditional Economies
• Rely on habit, custom, or beliefs & rituals
to answer economic questions
• Revolves around family, community strong
– more strict gender roles
–
Family business = “do as your father did”
• Change discouraged/punished
• Method of production inefficient; low
standard of living
• EX: AMISH
Economies & Values
Market Economies
•
•
•
•
•
AKA: FREE MARKET, CAPITALISM
Economic decisions made by individuals
Based on voluntary exchange (trade)
Change & innovation encouraged
Individuals determine what gets made
and how, and who consumes
• Market = Consumers + Producers
**MORE TO COME in SECTION 2**
Economies & Values
Command Economies
• Centrally planned = central government
alone decides answers to economic q’s
• Sometimes called command economies –
central authority is in command of
economy
• Little or no individual choice
• Change discouraged
**MORE TO COME in SECTION 3**
Economies & Values
Mixed Economies
• Mixed economy = market-based,
government plays a limited role
• Individual entrepreneurship + government
intervention thru regulations
• Change/individual choice embraced
**MUCH MORE TO COME in SECTION
4**