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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