Economic System
Way in which a nation uses its resources to satisfy its people's needs and wants.
What are the 3 basic questions that economic systems must answer?
1. What (and how much) should be produced?
2. How should it be produced?
3. For whom should it be produced?
What (and how much) should be produced?
#NAME?
How should it be produced?
Involves deciding what combination of resources (land, labor, capital) is most effective/efficient
For whom should it be produced?
How goods and services are distributed
What economic systems must answer the three basic questions?
All economic systems
What are the types of economic systems?
Traditional, command, and market
Traditional Economy
System in which economic decisions are based on customs and beliefs that have been handed down from generation to generation
Command Economy
System in which the government controls the factors of production and makes all decisions about their use
Market Economy
System in which individuals own the factors of production and make economic decisions through free interaction while looking out for their own and their families' best interests
Market
Freely chosen activity between buyers and sellers of goods and services
Mixed Economy
System combining characteristics of more than one type of economy
What are 3 other names for a market economic system?
Capitalism, laissez-faire system, and free enterprise system
Who is Adam Smith?
An economist who wrote a book on a system in which government has little to do with a nation's economic activity.
Invisible Hand Theory
Individuals left on their own would work for their own self-interest. In doing so, they would be guided as if by an "invisible hand" to use resources efficiently and thus achieve the maximum good for society.
What are the basic characteristics of the American economy?
Limited role of government, freedom of enterprise, freedom of choice, profit incentive, private property, and competition
What are the six economic goals?
Efficiency, growth, stability, security, equity, and individual freedom.