2. Basic Decisions  Production possibilities define the output choices confronting a nation: ◦ WHAT to produce ◦ HOW to produce ◦ FOR WHOM to produce

3. Answering the questions  How an economy answers these questions is reliant on the system it uses. ◦ In a centrally-planned economy, the government chooses the answers. ◦ In a market economy, individuals through a self-correcting market system do.

4.  Centrally planned systems purportedly tend to be more equitable. Whereas, market systems tend to be more efficient. ◦ Centrally planned economies tend to have a more equal sliced economic pie. ◦ Market systems usually tend to have larger pies, but not equally sliced.

5. A Mixed Economy  A mixed economy is one that uses both market signals and government directives to allocate goods and resources.  Most economies use a combination of market signals and government directives to select economic outcomes.  The U.S. relies mainly on a market system, whereas most European countries have more government control.