Answering the Answering the Three Three

Economic Economic QuestionsQuestions

Economic SystemEconomic System

The method used by a society to produce and distribute goods and services

United States?United States? Mixed economy, capitalism or free enterprise

Sweden?Sweden? Centrally Planned or Socialism

Former Soviet Union?Former Soviet Union? Centrally Planned or Communism

Three Key Economic Three Key Economic QuestionsQuestions

1.1. What Goods and Services should be What Goods and Services should be produced?produced?

Each society must decide what to produce to satisfy needs/wants because of limited resources

Food and Shelter National defense and education Public Health/welfare

Three Key Economic Three Key Economic QuestionsQuestions

2.2. How should these Good and Services be How should these Good and Services be produced?produced?

Each society must decide what and how many resources to use to produce products

Produce electricity through oil, nuclear or solar power.

Large corporate farms or small family farms Factors of production play an important role

Three Key Economic Three Key Economic QuestionsQuestions

3.3. Who Consumes these Goods and Who Consumes these Goods and Services?Services?

Each society answers this by choosing how to distribute income.

Compensation of supplying land, labor or capital.

Why do doctors and lawyers get paid more than firefighters or police officers?

Distribution of income is main difference between each economic system.

Economic Goals and Economic Goals and Societal ValuesSocietal Values

EfficiencyEfficiency Making the most of the resources Best way in least time

FreedomFreedom Free from government intervention Make your own choices

Security and PredictabilitySecurity and Predictability Assurance of goods/services availability Provide a safety net for disaster relief

Economic Goals and Economic Goals and Societal ValuesSocietal Values

EquityEquity Fair distribution of wealth What should you be paid for a job?

Growth and InnovationGrowth and Innovation Leads to increasing wealth and higher

standard of living Must provide new jobs/income for

increasing population

Traditional EconomyTraditional Economy

Habit, ritual or customs

Little innovation Boys follow father Girls follow mother Few safety nets Resistant to change Low standard of

living

Market EconomyMarket Economy

Decisions made by individuals and based on exchange or trade

No government intervention

Also called: Free markets Pure Capitalism

Centrally-Planned Centrally-Planned EconomyEconomy

Central government decides how to answer all economic questions.

No free enterprise allowed

Also called: Command economy

Mixed (Modern) EconomyMixed (Modern) Economy

Combination of Traditional, Market and Centrally-Planned economies.

Free Enterprise exists but there is also limited government intervention