Chapter 2 Economic Systems

Answering the Three Economic Questions Chapter 2 Section 1 Answering the Three Economic Questions ???

Answering the Three Economic Questions What key economic questions must every society answer? What basic economic goals do societies have? What types of economic systems exist today?

What is an Economic System? Economic System-A method used by society to distribute and produce goods and services. Three Key Economic Questions: What goods and services should be produced? Or What will be produced? How should these goods and services be produced? Or How will it be produced?

Who consumes these goods and services. Or For whom will it be produced Who consumes these goods and services? Or For whom will it be produced? -Factor Payments- The income people receive for supplying the 3 factors of production.

Economic Goals and Societal Values: Every economic system has a different way of answering the three economic questions? Economic Efficiency- Making the most of resources Economic Freedom- Freedom from government intervention in the production and distribution of goods and services. Patriotism- The love of one’s country through passion, inspiration, and pride!!

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. Safety Net- Set of government programs that protect people experiencing unfavorable economic conditions. Economic Equity- Fair distribution of wealth. Economic Growth and Innovation- Innovation leads to economic growth, and economic growth leads to higher standards of living. Standard of Living- Level of economic prosperity. Other goals- Protection of environment

Economics and Values – There are four economic systems that address the three key economic questions? Traditional Economies- Relies on habit, custom, or ritual to decide how to answer the three economic questions??? They are usually communities that stay relatively close and small. Market Economies- Economic decisions are made by individuals and are based on exchange, or trade. Market economies are also called free markets or capitalism.

Command Economies- In a centrally planned economy- the central government alone decides how to answer all three economic questions. Centrally planned economies are sometimes also called command economies- a central authority is in command of the economy. Mixed Economies- A combination of traditional, market, and centrally planned economies.