[ 2.1 ] The Three Key Economic Questions

1. [ 2.1 ] The Three Key Economic Questions

2. [ 2.1 ] The Three Key Economic Questions Learning Objectives • Identify the three basic economic questions that all societies must answer. • Describe the economic goals that determine how a society answers the three economic questions. • Define the characteristics of a traditional economy.

3. [ 2.1 ] The Three Key Economic Questions Key Terms • economic system • Factor payments • Profit • safety net • standard of living • Innovation • traditional economy

4. Three Basic Economic Questions • When you go to a supermarket, you see rows of shelves stacked with a variety of foods and products. • But suppose the government limited your choice to just one brand of cereal and one brand of soap. • Or what if the only goods available to you were what you and your neighbors could grow or make yourselves? • All of these examples represent ways different societies have dealt with the challenge of meeting people’s needs and wants.

5. Three Basic Economic Questions • What Goods and Services Should Be Produced? • How Should Goods and Services Be Produced? • Who Consumes the Goods and Services That Are Produced?

6. How does scarcity play a role in each of the three basic economic questions? • You have three minutes to jot down your answer to this question. I want you to post your answers on the board when you are finished.

7. What Goods and Services Should Be Produced? • Everyone needs food and shelter • But societies face additional considerations • How many resources should we devote to national defense? • Education? • Or consumer goods?

8. How Should Goods and Services Be Produced? • Education: Public or Private? • What should we use to generate electricity?

9. Three Basic Economic Questions In the United States, transactions like the one shown here help determine what goods and services are produced, how they are produced, and who consumes them. Describe How is this transaction helping to answer the three basic economic questions?

10. Three Basic Economic Questions This illustration shows two different approaches to the question of how to combine the factors of production. Analyze Information Which approach is most efficient? Explain your answer.

11. Who Consumes the Goods and Services that Are Produced? • How can people meet their needs for food and medical care? • Who gets to drive a new Ferrari and who has to take the light rail? • Who gets access to a college education? • The answers to the above questions deal with how societies choose to distribute income. • Factor payments are the income people receive in return for supplying factors of production.

12. Economic Goals of Society • Different societies answer the three economic questions based on the importance they attach to various economic goals. .

13. Economic Goals of Society • Efficiency • Ford is wasting resources if they produce Fiesta’s when everyone wants F-150’s • Freedom • Central American value • Work where we want • Buy what we can pay for • Own property • Costs? • Failure • Poverty • Security • Knowing you are going to get your paycheck on time • Knowing you can go to the store and buy break/milk • Knowing your money is going to have steady value • A Safety Net if you fail. • A base income for retired persons

14. Economic Goals of Society In recent years, many retailers have turned to the Internet to sell their goods and services. Describe How might the use of the Internet help achieve the economic goal of efficiency?

15. Economic Goals Cont’d • Equity: • Fairness • Should everyone share in the goods and services the nation produces? Or should one’s consumption be based on how much one produces? • How much should society provide for those unable or unwilling to produce? How are the benefits of economic freedom compromised but he goal of economic equity? Or is inequity possibly a cost of economic freedom?

16. Economic Goals of Society Household income rose between 1976 and 2011 at all five income levels—but not at equal rates. Analyze Graphs Which income group saw the greatest change?

17. Economic Goals Cont’d • Growth • Economies must grow to ensure improvement to standard of living. • Innovation plays a huge part in growth. • Industrial Revolution • Computer and networking technology • All Societies pursue these to some degree. • Conflicting Economic Goals: • Environment vs. oil production • Safety net vs. quick growth • Industry vs. clean air and water • Traditional Economies: • Habit, custom or ritual answer the three basic economic questions • Little room for innovation • Gender divides, Folks tend to take on jobs of their fathers/mothers • Generally lack modern conveniences and have a relatively low standard of living.

18. Quiz: Three Basic Economic Questions How is a society’s economic system defined? A. by how it answers the three basic economic questions B. by the decisions it makes about who consumes goods and services C. by the resources it uses to produce goods and services D. by the trade-offs it accepts in order to produce goods and services

19. Quiz: Economic Goals of Society Which economic goal reflects the desire of individuals to make their own choices about owning property or becoming entrepreneurs? A. efficiency B. freedom C. security D. equity