1. Three Fundamental Economic Questions
Guns vs. Butter
1. What to Produce?
The problem of scarcity imposes a restriction on the ability to produce everything we want during a given period, so the choice to produce “more” of a good requires producing “less” of another good.

2. Three Fundamental Economic Questions
2. How to Produce?
Vs.
How do we mix technology and scarce resources in order to produce goods and services?

3. Three Fundamental Economic Questions
3. For Whom to Produce?
Society must have a method to decide who will be “rich” and who will be “poor”.

4. Economic Security and Predictability
5 Economic Goals
Economic Efficiency
Economic Efficiency
Making the most of resources
Economic Freedom
Freedom from government intervention in the production of goods and services
Economic Security and Predictability
Assurance that goods and services will be available , payments will be made on time, and a safety net will protect individuals in times of economic disaster
Economic Equity
Fair distribution of wealth
Economic Growth and Innovation
Innovation leads to economic growth, and economic growth leads to a higher standard of living
Economic Freedom
Economic Security and Predictability
Economic Equity
Economic Growth and Innovation

5. Traditional Economies
Relies on habit, or ritual to decide how to answer the 3 economic questions.
Revolves around the family
Work divided along gender lines
Agricultural and hunting practices usually dominate the economy
Slow to adopt new technology or ideas

6. Centrally Planned (Command) Economies
The government owns both the land and capital and decides on behalf of the people how to answer the 3 economic questions
Government controls all aspects of production
Socialism – government owns some FOP
Karl Marx – The Communist Manifesto

7. Specialization of tasks makes the economy more efficient
Free Market Economies
Individuals and privately owned businesses own the factors of production and decide how to answer the 3 economic questions
Specialization of tasks makes the economy more efficient
Everyone acts in their own self-interest
There is no government intervention
Laissez Faire
Adam Smith’s Invisible Hand
Self-interest and competition work together to regulate the marketplace

8. wages, rent, interest, profits
Circular Flow of Money
Factor Payments
wages, rent, interest, profits $
Product Market
Factor Market
F.O.P
L.L.C
Businesses
Households
Supply
Goods and services
Expenditures
Demand $

9. Economic decisions are made by individuals with government oversight
Mixed Economies
The people answer the 3 economic questions with some intervention from the government to account for market failures
Economic decisions are made by individuals with government oversight
Government is a key component of economic activity
All nations exist in the “mixed economy continuum”
N. Korea
Iran
Cuba
United Kingdom
France
Peru
Canada
United States
Singapore
Russia
Centrally Planned
Free Market