Basic Economics

Basic Economics
Basic Economic Questions & Economic Systems
Three Basic Economic Questions
Because of scarcity, every society or economic system must ask themselves three basic questions:
􀀀 What to produce?
􀀀 How to produce?
􀀀 For whom to produce?
Economic Systems
􀀀 The way a country answers questions about the use and distribution of its resources may be influenced
by its:
􀀀 History
􀀀 Culture
􀀀 Geography
􀀀 Political Situation
􀀀 Numerous other factors
Economic Systems versus Government Systems
Economic Systems and a System of Government are different.
􀀀 Economic System
􀀀 Describes a way of producing goods and services and providing a means for people to receive those
goods and services.
􀀀 Government System
􀀀 System of political institutions, laws, and customs that a society uses to determine its code of
conduct.
Traditional Economy
􀀀 An economy in which people do things the way they have always been done.
􀀀 “If your father is a farmer, you are a farmer.”
􀀀 The same methods of production are used.
􀀀 Little or no change from year to year.
􀀀 Methods based on habit, custom, and religious belief.
􀀀 Roles are narrowly defined.
􀀀 Advantage
􀀀 Everyone has a role in it.
􀀀 Disadvantage
􀀀 It discourages new ideas and ways of doing things.
􀀀 Places you can find this type of economic system:
􀀀 Societies in the rain forests of Latin America
􀀀 Parts of Africa
􀀀 Middle East
Command Economy
􀀀 An economic system influenced by the commands, or directives, of a central authority consisting of one
person, or a small group who controls others in the society.
􀀀 The members of the society carry out the demands.
􀀀 Two types of command economy in the world today: Strong & Moderate
􀀀 Strong
􀀀 Countries: North Korea and Cuba
􀀀 Common ownership, the government owns and controls factories, equipment, and land.
􀀀 The leaders of the country answer the three basic economic questions.
􀀀 Political Structure is called Communism.
􀀀 Advantages - in theory, the economy can make a dramatic change in a short time.
􀀀 Disadvantages - consumer goods and services are low on the list of priorities; very few of the
citizens’ wants are met .
􀀀 Moderate
􀀀 Government ownership of major industries like the railroads, steel industry and iron industry.
􀀀 Provision of opportunities for private ownership.
􀀀 Political structure is called Socialism.
􀀀 Countries include: Sweden and France
Market Economy
􀀀 A system in which the basic economic decisions are based on the actions of buyers and sellers; the
market produces goods and services people are willing to buy and that will bring a profit to the sellers
and producers.
􀀀 Countries: United States & Japan
􀀀 Commonly referred to as capitalism.
􀀀 Economic questions are answered by buyers & sellers.
􀀀 Price plays an important role.
􀀀 Regulation by government is minimal.
Market Economy
􀀀 Advantages
􀀀 It can adjust to change over time as consumer wants and needs change.
􀀀 Freedom for everyone to be involved.
􀀀 Disadvantages
􀀀 It rewards only citizens who are productive in the economy.
􀀀 Wealth of economy is not evenly distributed.
􀀀 “You need money to make money.”
􀀀 Market economies may vary with a difference in the amount of government control.
Mixed Economy
􀀀 An economic system that is made up of parts of several other economic systems.
􀀀 No country has an economy based totally as any of the aforementioned.