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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?.

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Answering the Economic Questions

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  1. 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?

  2. 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

  3. 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

  4. Broad Social Goals for Economies

  5. Two Major Economic Systems • Free enterprise (free market) an economic system in which individuals (not government) • Command Economy an economic system in which government

  6. 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

  7. 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

  8. Present Economic Systems • Almost all countries today feature parts • Mixed economy an economy that is neither purely

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