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Published byLucinda Flowers Modified over 9 years ago
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How do economic systems answer your basic economic questions?
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What to produce How to Produce For whom to produce
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Answers the basic economic questions by rituals, habits, religious beliefs, and customs
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Individual roles are determined the elders Examples: herding cattle, hunting and gathering, subsistence farming
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There is little or no uncertainty- everyone knows the role they play Life is generally stable, predictable, and continuous
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Tends to discourage new ideas and new ways of doing things Lack of progress lowers the standard of living
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1. What to produce? Whatever customs and traditions dictate
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2. How to produce? Whatever customs and traditions dictate
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3. For whom to produce? Whatever customs and traditions dictate
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Basic Economic Questions are answered by the government
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Only two Command Economies left in World- Cuba and North Korea
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It is associated with communism and socialism
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The government has total control over production and its factors, thus the economy can change rapidly. Whatever is needed most will be produced
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Example is collective farms which are owned and operated by the central government. Money made goes to the government
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Free education, free healthcare, and other public services
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Economy is designed to meet needs not wants There is no incentive to work hard—people don’t often lose their jobs so they do the bare minimum
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Economy supports a large bureaucracy (government) which means decision making is slow, costs of production are high, and there is no flexibility
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There is no reward for initiative
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1. What to produce? Whatever the government says to produce
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2. How to produce? However the government tells you to produce
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3. For whom to produce? For whomever the government tells you to produce
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Basic economic questions are answered by consumers
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Laissez-faire is a pure market economy meaning “allow to do”. The government has little or no power in what is produced or sold.
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Free-enterprise system- business owners set their own prices and sell their own goods.
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Adjusts to change based on consumer wants High level of individual freedom Low level of government interference
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Because individuals make the decisions, everyone has a voice in the way economy runs
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Wide variety of available goods and services Many choices=high degree of consumer satisfaction
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Poverty: only those with money can participate
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Market does not provide for people’s basic needs. Government must attempt to do this (Think about Katrina)
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High degree of uncertainty: people lose their jobs and businesses fail
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Greed based system puts profits before people (think about loss of jobs here. What caused it?)
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Are they truly Free market economies? Does the government regulate businesses? Does the government control any businesses?
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1. What to produce? Directed by the consumers.
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2. How to produce? Companies decide cheapest and most efficient means of production.
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3 For whom to produce? The consumer that has the ability and money to afford the companies product.
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An economy is considered a mixed economy when there are characteristics of more than one economy evident. For example, the United States is a mixed economy because there are privately owned businesses that operate on their own like a market system but they are regulated by the government also.
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