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 the study of how individuals and groups of individuals strive to satisfy their needs and wants by making choices economics

Key Terms economic systems the methods societies use to distribute resources an economic system in which economic decisions are made in the marketplace market economy

Key Terms the amount of money given or asked for when goods and services are bought or sold price the amount of goods and services that producers will provide at various prices supply

Key Terms the amount or quantity of goods and services that consumers are willing to buy at various prices demand the point at which the quantity demanded and the quantity supplied meet equilibrium price

Key Terms an economic system in which a central authority makes the key economic decisions command economy mixed economy an economy that contains both private and public enterprises

Basic Economic Questions There are three basic Economic questions. economics the study of how individuals and groups of individuals strive to satisfy their needs and wants by making choices

Basic Economic Questions What should be produced? 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.

Different Types of Economies Different economic systems answer the three basic economic questions in different ways. economic systems the 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 economy an economic system in which economic decisions are made in the marketplace

Characteristics of a Market Economy Market Economies Characteristics of a Market Economy 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

The lower the price, the more consumers will buy. Market Economies The higher the price for goods or services, the less consumers will buy. The lower the price, the more consumers will buy. price the amount of money given or asked for when goods and services are bought or sold

There is a relationship between price, supply, and demand. Market Economies There is a relationship between price, supply, and demand. supply the amount of goods and services that producers will provide at various prices demand the 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 price the point at which the quantity demanded and the quantity supplied meet

Supply, Demand, and Equilibrium Figure 2.1 Supply, Demand, and Equilibrium

Supply, Demand, and Equilibrium Figure 2.1 Supply, Demand, and Equilibrium

Supply, Demand, and Equilibrium Figure 2.1 Supply, Demand, and Equilibrium

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 economy an economic system in which a central authority makes the key economic decisions

Characteristics of a Command Economy Command Economies Characteristics of a Command Economy 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

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 economy an economy that contains both private and public enterprises.

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.

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.

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.

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