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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
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
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