Key Economic Questions Economic systems: Answering the Three Key Economic Questions

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2.1 Answering the Three Economic Questions! Economic System- The method used by a society to produce and distribute goods and services.

3 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?

Economic Systems Each society must answer the 3 questions in order to satisfy its wants and needs. There are different ways to answer the 3 questions.

Economic Systems Traditional Economic System- They rely on habit, custom, or ritual to decide what to produce, how to produce it, and whom to distribute it to. 3 Questions answered by Tradition Fewer people struggle Very difficult to change

Economic Systems (Cont.) Free (Capitalism) Market Economic System - Economic decisions are made by individuals and are based on exchange or trade. 3 Questions answered by the people The people own the factors of production. Freedom!! Some people may struggle

Economic Systems (Cont.) Command Economic System - The central government alone decides how to answer all three economic questions. 3 Questions answered by the government Fewer people struggle Lack incentives to do better

Economic Systems (Cont.) Mixed Economic System - Market based economic systems in which the government plays a limited role. 3 Questions answered by people & government A mix of Market and Command Freedom for people to own F.O.P. Some people may still struggle

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