1. Economic systems

2. Fundamental Economic Questions
Because of scarcity—every nation must answer the three fundamental economic questions:
What products will be produced?
How will the products be produced?
For whom will the products be produced?

3. What to Produce? The What question
Requires an economy to decide the mix & quantity of goods and services that it will produce.
In US, free enterprise with consumer sovereignty answers the What question.

4. How to Produce? The How question
Which combination of technology and resources to use for producing goods and services.
Should labor be more or less capital-intensive
Education plays an important role
Improves the ability of workers to perform their work

5. For Whom to Produce? The For Whom question
Which people receive the goods and services produced
In a free market system
Price is used to decide who will receive the goods and services that are produced.
Earn more money = buy more products

6. Economic systems Economic system
The methods used to answer the What, How, and For Whom questions.
Traditional
Market
Command

7. Traditional Economy
Answers the questions, the way they have been answered for generations.
Inuit of Canada
Amish of Pennsylvania
+ Reduces friction among members
-- Restricts individual initiative

8. Read/Think/Pair/Share
Market Economy
Answers the three basic questions based only on voluntary buying and selling in markets.
Adam Smith
Invisible hand: the best interests of a society are served by markets guided by self-interest.
Read/Think/Pair/Share

9. Market Economy -- very wealthy and very poor
+ inequality gives people an incentive to strive for the reward of earning more income
Milton Friedman

10. Command Economy
Answers the questions by a dictator or central authority
Former Soviet Union
China in the past
Cuba & North Korea

11. Command Economy
Socialism: based on govt. ownership of resources and centralized decision making
Karl Marx
Communism: classless economic system in which all resources are owned by the workers
The ideal version of socialism

12. Mixed Economy Mixed Economy United States
Answers the questions through a mixture of traditional, command, and market systems.
Most countries employ a mixed economy
United States
Nationalization
The act of transforming a private enterprise into a government enterprise
Amtrak
General Motors