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Chapter 2

Economic Resources and Systems

Section 2.2

Economic Systems

Read to Learn

Describe the three basic economic questions

each country must answer to make decisions

about using their resources.

Contrast the way a market economy and a

command economy answer the three economic

questions.

The Main Idea

Scarcity of economic resources forces every

country to develop an economic system that

determines how resources will be used. Each

economic system has its advantages and

disadvantages.

Key Concepts

Basic Economic Questions

Different Types of Economies

Key Terms

economics

the study of how individuals and

groups of individuals strive to satisfy

their needs and wants by making

choices

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Key Terms

economic

systems

market

economy

the methods societies use to

distribute resources

an economic system in which

economic decisions are made in the

marketplace

Key Terms

price

supply

the amount of money given or

asked for when goods and services

are bought or sold

the amount of goods and services

that producers will provide at

various prices

Key Terms

demand

equilibrium

price

the amount or quantity of goods and

services that consumers are willing

to buy at various prices

the point at which the quantity

demanded and the quantity supplied

meet

Key Terms

command

economy

mixed

economy

an economic system in which a

central authority makes the key

economic decisions

an economy that contains both

private and public enterprises

Basic Economic Questions

There are three basic

Economic questions.economicsthe study of how individuals and groups of individuals strive to satisfy their needs and wants by making choices

Basic Economic Questions

What should beproduced?

How should it be produced?

Who should share in what is

produced?Deciding to use a resource for one

purpose means

giving up the opportunity to use it

for something else.

This is called

opportunity cost.

The methods and labor used as well

as the quality of

items produced are important factors.

In most societies, people can have as

many goods and

services as they can afford to buy.

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Different Types of Economies

Different economic

systems answer the

three basic economic

questions in different

ways.

economic systemsthe methods societies use to distribute resources

Market Economies

A market economy

can also be called a

private enterprise

system, the free

enterprise system, or

capitalism.

market economyan economic system in which economic decisions are made in the marketplace

Market Economies

Resources are privately owned

Citizens can own their own homes, land, and businesses

Business owners decide how their businesses will be run

Business owners decide what to produce and sell

Business owners decide what to charge

Government works to promote free trade and prevent unfair

trade practices

Consumers choose their occupations and where to live

There is an uneven distribution of income

Characteristics of a Market Economy

Market Economies

The higher the price

for goods or services,

the less consumers

will buy.

The lower the price,

the more consumers

will buy.

pricethe amount of money given or asked for when goods and services are bought or sold

Market Economies

There is a

relationship between

price, supply, and

demand.

supplythe amount of goods and services that producers will provide at various prices

demandthe amount or quantity of goods and services that consumers are willing to buy at various prices

Market Economies

Supply and demand

interact with each

other to form the

equilibrium price.

equilibrium pricethe point at which the quantity demanded and the quantity supplied meet

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Supply, Demand, and EquilibriumFigure 2.1 Supply, Demand, and EquilibriumFigure 2.1

Supply, Demand, and EquilibriumFigure 2.1 Market Economies

Competition among similar businesses is one

of the basic characteristics of a free enterprise

system.

Profit motive is the desire to make a profit.

Command Economies

In a command

economy, the

government owns

and controls all the

resources and

businesses.

command economyan economic system in which a central authority makes the key economic decisions

Command Economies

The government dictates what will be produced, how it will be

produced, and who will get the goods

There is little choice of what to buy

Goods are not considered necessities

Prices are controlled by the state

There is no competition and little incentive to produce a

better product

Highly skilled workers may earn the same as low-skilled workers

Characteristics of a Command Economy

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Command Economies

A moderate command economy is also known

as socialism.

In a moderate command economy, there is

some form of private enterprise, but the state

owns major resources.

Mixed Economies

Most nations have a

mixed economy,

which combines

elements of capitalism

and socialism.

mixed economyan economy that contains both private and public enterprises.

1. How does a market system decide what will be produced?

A market system decides what is to be produced through supply and demand in the marketplace.

2. In a market system, what determines how many goods and services an individual can buy?

It is through one’s income—mostly generated by working.

3. Some nations can produce more goods with fewer workers than other countries that have more workers. How can that be true?

More technology is used in the country with fewer workers, increasing worker productivity.

Chapter 2

Economic Resources and Systems

Section 2.2

Economic Systems

End of