The document discusses the three basic economic questions that all societies must answer: 1) What goods and services should be produced? 2) How should goods and services be produced? 3) Who consumes the goods and services? It then provides details on the different economic systems (market, command, mixed) and how they approach answering these questions, including their strengths and weaknesses.
The document discusses the three basic economic questions that all societies must answer: 1) What goods and services should be produced? 2) How should goods and services be produced? 3) Who consumes the goods and services? It then provides details on the different economic systems (market, command, mixed) and how they approach answering these questions, including their strengths and weaknesses.
The document discusses the three basic economic questions that all societies must answer: 1) What goods and services should be produced? 2) How should goods and services be produced? 3) Who consumes the goods and services? It then provides details on the different economic systems (market, command, mixed) and how they approach answering these questions, including their strengths and weaknesses.
The document discusses the three basic economic questions that all societies must answer: 1) What goods and services should be produced? 2) How should goods and services be produced? 3) Who consumes the goods and services? It then provides details on the different economic systems (market, command, mixed) and how they approach answering these questions, including their strengths and weaknesses.
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What are the three
Economic Questions? Students will compare the major economic systems in the world and examine their ability to provide citizens with social and economic freedoms.
The Three Basic Economic
Questions 1. What goods and services should be produced? 2. How should these goods and services be produced? 3. Who consumes these goods and services?
What goods and services should
be produced?
Basic Needs- food, clothing and shelter
Problems in Modern Societies- How many resources do we devote to national defense, education, public health, welfare, consumer goods?
- What consumer goods should
we produce?
How should these goods and
services be produced?
Although there are countless ways to create all the
things we want and need, all require land, labor and capital The factors of production can be combined in different ways Should we produce electricity with oil, solar power, nuclear, water or coal? Should teachers have 20 or 50 students in a class?
Who consumes these goods and
services?
How do we distribute abundance?
Who gets to eat a balanced diet and who doesnt? Who get to buy a luxury car and who cant afford one? Who lives in a mansion and who lives in the projects? Factor payments- the income people receive for supplying factors of production- land, labor, capital and entrepreneurship. 1. Examples
Who gets what, is the key difference between economic
systems today. Every society answers this questions based on their social goals and values
Economic Goals of a Society
Economic System- the method used by a society to
produce and distribute goods and services.
Three Economics Systems
1. Capitalism 2. Command 3. Mixed Economy
The 7 Goals of an Economy
1. Economic efficiency- Making the most of your resources, an economy that cant deliver goods isnt efficient. 2. Economic freedom- Freedom from government intervention in the production and distribution of goods and services 3. Economic security and predictability- Assurance that goods and services will be available, payments will be made on time, and a safety net will protect individuals in times of economic disaster
The 7 Goals of an Economy
4. Safety Net- government programs that protect people during bad economic times. Examples5. Economic equity- How much should you get paid for your services or lack of services. 6. Economic growth and innovation- Innovation leads to economic growth, and economic growth leads to a higher standard of living. 7. Value goals- Societies pursue additional goals, such as environmental protection, universal medical care, etc
How does this represent
innovation and growth?
How does this represent
innovation and growth?
Market Economy (Capitalism)
Definition- economy based on private ownership were
individuals control the production, distribution and sale of goods. Key Person: Adam Smith- Wealth of Nations Why do markets exist? 1. Markets exist because none of us produces all the goods and services we require to satisfy and wants.
our needs
How is money and goods exchanged in a Free Market?
1. In a free market economy, households and business firms use markets to exchange money and products. Households own the factors of production and consume goods and services.
The Principles of Free Enterprise
1. Profit Motive The drive for the improvement of material well-being.
2. Open opportunity The ability for anyone to compete in the marketplace.
3. Legal equality Equal rights to all.
4. Private property rights
The right to control your possessions as you wish.
5. Free contract The right to decide what agreements in which you want to take part. 6. Voluntary exchange The right to decide what and when you want to buy and sell a product. 7. Competition The rivalry among sellers to attract consumers.
Households pay firms for goods and services.
Product market
Firms supply households with goods and services.
Households supply firms with land, labor, and capital.
Firms pay households
for land, labor, and capital.
Factor market
The Forces in a Free Market
Self-interest- In every transaction, the buyer and
seller consider only their own personal gain. Selfinterest is the motivating force in the free market. Competition- Producers in a free market struggle for the dollars of consumers this is the regulating force of the free market. Invisible hand- The interaction of buyers and sellers, motivated by self-interest and regulated by competition, all happens without a central plan.
Market Economy- Strengths
Economic Efficiency- as a self regulating system
Capitalism is very efficient Economic Growth- Free market encourages innovation which leads to growth Economic Freedom- offers the most economic freedom Additional Goals- offers the largest variety of goods and services
Market Economy- Weaknesses
Freedom to starve, wealth is unevenly distributed
NO equity or fairness
NO motive to help the poor
Greed for profit can result in dangerous goods being
provided Poor Product safety
Command Economy
Definition- the government owns both land and capital.
The government decides what to produce, how much to produce, and how much to charge. Key Person- Karl Marx: Communist Manifesto Two types of Command Economies1. Socialism- is a social and political philosophy based on the belief that democratic means should be used to distribute wealth evenly throughout a society. (Welfare Card) 2. Communism- is a political system characterized by a centrally planned economy with all economic and political power resting in the hands of the government. (Hammer and Sickle)
Centrally Planned System
Agriculture- the government created large
state-owned farms and collectives for most of the countrys agricultural production. Industry- planners favored heavy-industry production (such as steel and machinery), over the production of consumer goods. Consumers- Consumer goods are scarce and usually of poor quality
Centrally Planned
Strength- Everyone knows what the plan is
and is focused on completing that plan. Weaknesses-
1. Unable to pull this off in a modern country
(countries are too big). 2. Inefficient and leads to shortages of needed items- but a surplus of non-essential items. (Underutilization) 3. Responds slowly to change 4. No worker incentives
Mixed Economies
Definition- an economy that is a mixture of
both command and market economies. There are no pure forms of either, most countries have some government intervention. Give Three Examples of Positive Government Intervention 1. 2. 3.
Circular Flow Diagram of a Mixed Economy
Product market monetary flow physical flow
ta x
Households
t en s m e rn as e h v c gopur
es
expenditures
Government
expenditures
t- s e n to r n m f ac r ve ed go wn o physical flow monetary flow
