Answering the economic questions
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Answering the Economic Questions. Economic system  the method used The economic system chosen by a society Three questions to answer: What goods will be produced? How will the goods be produced Who consumes these goods and services?.

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Answering the Economic Questions

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Answering the economic questions

Answering the Economic Questions

  • Economic system the method used

  • The economic system chosen by a society

  • Three questions to answer:

    • What goods will be produced?

    • How will the goods be produced

    • Who consumes these goods and services?


What goods will be produced and how will they be produced

What goods will be produced? And how will they be produced?

  • Question 1:

    • No country can produce

    • Each production decision that a society

  • Question 2:

    • Societies have to figure out a way to combine the factors of production in


Who consumes goods and services

Who consumes goods and services?

  • Societies decide who consumes the goods and

  • Factor payments the income people

  • The question of who gets to consume which goods and services lies at the heart of economic systems

  • Each society answers the question of distribution based on


Broad social goals for economies

Broad Social Goals for Economies


Two major economic systems

Two Major Economic Systems

  • Free enterprise (free market) an economic system in which individuals (not government)

  • Command Economy an economic system in which government


Resources and government role

Resources and Government Role

  • Resources  Free Market:

    • Owned and controlled by

  • Resources  Command:

    • Owned and controlled

  • Government Role  Free Market:

    • Small role, does not make decisions on what or how things should be produced

    • Decisions are made

  • Government Role Command:

    • Government sets production levels


Economic plans income distribution

Economic Plans, Income Distribution

  • Economic Plan specifies the

    • (example: produce more trucks than wheat)

  • Income distribution how all the income earned is divided among the

    • Free market gov’t. doesn’t “care” how income is distributed

    • Command


Present economic systems

Present Economic Systems

  • Almost all countries today feature parts

  • Mixed economy an economy that is neither purely


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