1. Three Model Economies
Pages 31-34

2. Three Major Questions Like individuals, societies face scarcity
Societies must make decisions on how to use their resources.
They ask:
What are we going to produce?
How is it to be produced?
Who receives how much?

3. Pure Traditional Economy
When the custom or tradition of a society determines the answers to the three major questions
Discourages change and growth

4. Pure Traditional Economy
What are we going to produce?
What we have always produced
How is it to be produced?
The same way it has always been produced
Who receives how much?
People receive the same amount they have always received.
Example: Bushmen of the Kalahari Desert

5. Pure Command Economy
When government determines the answers to the three major questions
Good in theory, but extremely difficult to do
High possibility for errors
Very little individual choice allowed for
Example: Former Soviet Union

6. Pure Command Economy What are we going to produce?
Government decides what goods and services to produce
How is it to be produced?
Government owns the natural and capital resources, so it decides
Who receives how much?
Government decides who works where and who gets paid what, so it decides

7. Pure Market Economy
When the actions of buyers and sellers of goods and services determine the answers to the three major questions
The uncoordinated actions of thousands working without a central plan

8. Pure Market Economy What are we going to produce?
What consumers want to spend their money on
How is it to be produced?
Competition among producers determines how goods are produced
Who receives how much?
The market determines this (competitive prices)

9. Pure Market Economy Advantages:
Goods and services that consumers want are produced
Individuals can choose their job and change it as they wish
Business owners can own resources, hire/fire workers as they wish, and decide how their business is run

10. Pure Market Economy Disadvantages:
Goods and services go to consumers with the most money
Demand can force consumers to pay high prices for goods and services (ex. new gaming systems)
Overproduction/underproduction can happen
“Buyer beware”

11. Basic Characteristics of PME
Private property rights
The right of individuals and corporations to own consumer goods as well as goods used in production (capital resources)
Profit
Excess revenue after expenses (the right to earn a profit)

12. Basic Characteristics of PME
Consumer sovereignty
The dominant role of the consumer in determining what, how, and for whom to produce
Self-interest
The pursuit of your own advantage

13. Basic Characteristics of PME
Competition
The search for higher wages, profits, and lowest prices (acts to regulate self-interest)