Chapter 2 Economic Resources and Systems Section 2.2 Economic Systems

Basic Economic Questions Economics: the study of how individuals and groups of individuals strive to satisfy their needs and wants by making choices. What should be produced? Deciding to use a resource for one use means giving it up for another use (opportunity cost) How should it be produced? What methods and labor should be used as well as the quality of the items produced. Who should share in what is produced? In most societies, people can have as many goods and services as they can afford. This is determined by their income.

Types of Economies Economic Systems: methods societies use to distribute resources Different economic systems answer the three basic economic questions in different ways. Two major types: Market and Command

Market Economy Market Economy: an economic system in which economic decisions are made in the marketplace. The marketplace is where buyers and sellers exchange goods and services usually for money Resources are privately owned by citizens. Business owners decide how to run their business Government works to promote free trade and prevent unfair trade practices. People who have labor skills are in higher demand than those who do not, therefore, they earn more income.

Price, Supply, and Demand Price: the amount of money given or asked for when goods and services are bought or sold. 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. The higher the price, the less consumers are willing to buy. Equilibrium Price: the point at which quantity demanded and the quantity supplied meet.

Command Economy Command Economy: an economic system in which a central authority makes key economic decisions. Government owns and controls all resources and businesses Government decides what products will be produced, how it will be produced, and who gets the product. Little choices of what to buy Goods that are not necessities are often hard to find No competition Highly skilled workers are paid the same as low skilled workers

Mixed Economy Very few nations are purely Market or Command Economy. Mixed economy: contains both private and public enterprises. Combines elements of both capitalism and socialism. United States is a mixed economy Government provides defense, education, and aid to less fortunate. Mostly a Market Economy Markets make most decisions on what goods and services will be produced.

Homework Complete 2-2 Reading Activity Complete 2-2 Graphic Organizer Review questions on page 31 #’s 1-3. Quiz on Ch. 2 will be on Friday.