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Organized set of procedures that answer the basic economic questions.
Economic Systems Organized set of procedures that answer the basic economic questions. Chapter 2 Section 1
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These goals sometimes conflict
Economic Goals Economic Efficiency Economic Freedom Economic Security Economic Equity Economic Growth These goals sometimes conflict
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Three Economic Questions
What is to be produced? How will it be produced? For whom will it be produced?
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Depending on how the 3 questions are answered depends on the type of economy the nation uses.
Free Market (section 2) Command (section 3) Mixed (section 4)
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Economic Systems Traditional Market (Free Market)
Command (Centrally Planned) Mixed
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Traditional Economic Questions answered by tradition and custom
Typically rural and nonindustrial: small communities No national economy Factors of Production ‘owned’ by tribes or villages Subsistence production
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Free Market 3 Questions answered by the Households
Factors of Production owned by the Households (private, not public) Profit Motive (self-interest) Laissez-Faire Economics
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Economic growth is most likely with this type of economy
Competition fosters innovation Consumers let producers know what to produce and how much to charge Buying habits send messages “The Customer is King” Adam Smith & the Invisible Hand
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The Invisible Hand
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Command (Centrally Planned)
3 Questions answered by Government Factors of Production owned by Government (Public, not Private) Individuals have little to no choice Communism & Karl Marx Ex: China and North Korea
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Mixed Economies Reality of today’s economic systems
No ‘pure’ Command or Free Market Some Private and Some Public ‘Socialism’ & ‘Free Enterprise’ mixed Government in USA gets involved to “promote the general welfare” Gov’t in modern economy can meet some needs/wants better than private industry
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