Chapter 2: Economic Systems
[Pages:19]Chapter 2: Economic Systems
Section 1: Answering the Three Economics Questions
Economic System
? Method used by a society to produce & distribute goods & services ?Which economic system a society employs depends on that society's goals & values
3 Key Economic Questions
? What goods & services should be produced? ?Each society must decide what to produce in order to satisfy its needs & wants
? How should goods & services be produced?
?All require land, labor, & capital & can be combined in different ways
? Who consumes goods & services?
?Societies must decide how to distribute the available goods & services
?Determined by how societies choose to distribute income
? Factor payments- income people receive for supplying land, labor, & capital
?Landowners receive rent, workers receive wages, & those who lend money to build factories or buy machinery receive interest
?Entrepreneurs earn profits if their enterprises succeed
? The question of who gets to consume which goods & services lies at the very heart of the differences between economic systems
?Each society answers the question of distribution based on its unique combination of social values & goals
Economic Goals & Societal Values
? Economic efficiency ?Making the most of resources ?Knowing the best way to produce a product & cut waste
? Economic Freedom
?People all over the world face limitations on economic freedom
?Freedom from government intervention in the production & distribution of goods & services
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