Who gets what, and when do they get it? Economic Systems Who gets what, and when do they get it?

3 Basic Economic Questions What goods/services will be produced? (can’t make enough of everything) How will those goods/services be produced? (So we don’t waste scarce resources) Who gets how much, and why? (How do we divide up what the system produces An economic system must provide a decision making model to answer these questions.

Economic Systems Traditional – 3rd world nations. Relies upon past custom and tradition. (People make what they have always made, and in the way they have always made it)

Economic Systems Command – Communist. Relies upon the central planning decisions of the government. (People make what the gov’t tells them to make) In-efficient, but equitable.

Economic Systems Market – Capitalist. Relies upon buyers and sellers interacting in markets. Efficient, but un-equitable.

Features of a Market Economy There are 5 main features of a Market Economy. 1.) Private ownership of property Property and Factors of Production are owned by private citizens 2.) Limited Government Involvement Guided by the principle of laissez faire, a French phrase meaning “leave things alone”. 3.) Voluntary Exchange Buyers and Sellers meet voluntarily in a Market to exchange goods and services. 4.) Competition and Consumer Sovereignty Consumers, because they are free to choose, are in control of the market 5.) Specialization People use their specific skills/talents to gain an advantage over others.

Principal Economic Goals For any Economic System the following goals must be met/addressed Efficiency – Obtain the largest amount of output for the lowest amount of input. Price Stability – Have the price of goods and services remain relatively constant Full Employment – Have the unemployment level to be around 4% - 5% Growth – Achieve an increase in the production capacity of the economy