Essential Questions

What is economics?What are the components of modern economic systems?

The study of how people

choose to use their limited resources to

meet their needs and wants.

Societies must choose an economic system to reach their economic goals. To help them do

this, they have to answer key questions.

Three Economic QuestionsWhat goods and

services should be produced?

How should goods and services be

produced?

Who consumes the goods and services?

-How much of our resources should we devote to national defense, education, public health, or consumer goods?-Which consumer goods should we produce?

-Should we produce food on large corporate farms or small family farms?-Should we produce electricity with oil, nuclear power, coal, or solar power?

-How do goods and services get distributed?-The question of who gets to consume which goods and services lies at the heart of the differences between economic systems. -Each society answers the question of distribution based on its combination of social values and goals.

The method used by a society to produce and distribute goods

and services

Classifying Countries• Developed Country

• Emerging Market

• Newly Industrialized Country

• Developing Country

• Highly industrialized, highly efficient, and whose people enjoy a high quality of life

• Newly industrialized countries plus those with potential to be newly industrialized

• Recently greater national production and exports from industrial operations

• Poor infrastructure and extremely low personal income

Centrally Planned

(Command)Mixed Free

Market

• People make economic decisions based on custom or habit.

• Agriculturally based.• They produce only what they need.• Mainly in rural areas of developing

nations.

• Mostly private (individual or business) ownership of economic resources.

• Economic decisions are made by the marketplace – supply & demand.

• Called capitalism, free-enterprise• Government is involved in many

ways.

Other names for

• Capitalism• Free – Enterprise• Free Market

Market Economies

• Economic resources owned by the government – most land, factories, and other resouces.

• Central government planners make most economic decisions for the people.

• Education, health care, and welfare services are provided

• Called command, socialist, or communist

Other names for

•Command•Socialist•Communism

CENTRALLY PLANNED

ECONOMIES

• A mix of socialism and free enterprise in which the government plays a significant decision making role.

• Resources are spilt rather evenly.

• Called social democratic, liberal socialism

Other names for

•Social Democratic•Liberal Socialist

Mixed Economies

A CLOSER LOOK …

-Private ownership of natural resources & capital goods

-Values individual choice & initiative

Government keeps its “hands off” business

(laissez-faire)

This promotes competition

Prices are

stable

The forces that determine prices of goods and services

in a market economy is called

Supply &

Demand

-Gov’t controls part of the economy

-Values community rather than profit

Government provides

services for people

(health care

& social security)

Socialism

A Dictator+

A classless society (everyone is equal)

One-party rule, gov’t ownership of the

means of production, and decision making

by centralized authorities.

Good of the many surpasses the

rights of an individual

Individual rights don’t

exist

Concepts of competition &

profit are rejected

Everyone contributes & receives the

same amount

MixedCombination of socialism and free enterprise.

Gov’t plays a significant role in making economic decisions.

Quick Recap• Modern Economic

Systems– Traditional– Centrally Planned– Mixed– Free Market

• Economic System Types– Capitalism– Socialism– Communism– Mixed

Which economic system do you think

is best for a country?

Your response must be at least 75 words and provide at least two

reasons for your choice.