What should be produced?
How should it be produced?
For whom should it be produced?
Three basic economic questions
Economic growth, economic freedom, equity, efficiency, economic security
Five basic economic goals
Traditional, Command, Market, Mixed
Four types of economic systems
Equity
the quality of being fair and just
Economic security
confidence in their ability to support themselves and their families
Social safety net
any form of government assistance for those with financial needs
Economic freedom
gives people the ability to make economic decisions for themselves
Sustainability
the ability to continue actions indefinitely; the ability of resources to last forever
Incentive
the prospect of a reward or punishment that influences a decision or motivates greater effort
Traditional economy
decisions about resources are made by habit, custom, superstition, or religious tradition
Advantages of traditional economy
economic security; stable and equity
Disadvantages of traditional economy
rarely achieve the goals of economic freedom, economic growth, and a high standard of living
Command economy
central planners make the important decisions about what, how, and for whom to produce
Communism
economic system under which all resources and businesses are publicly owned and economic decisions are made by central authorities
Socialism
an economic system under which most resources and businesses are publicly owned and economic decisions are made by groups of workers and consumers
Advantages of command economy
provide economic security, no safety nets, and flexibility-government can change what they want
Disadvantages of command economy
no equity-reality is that communism did not exist, low standard of living, and rationing/black markets
Incentive for traditional economy
social approval
Incentive for command economy
incentive comes from the government
Karl Marx
he Communist Manifesto; all about revolution; looked at economic systems through a historic lens; proletariat (have nots) vs bourgeoisie (haves); no countries are/were 100% communist
Market economy
most key economic decisions are made by business owners and consumers
free-enterprise system
an economic system based on private (individual or business) ownership of resources and voluntary exchange
Incentive for market economy
incentive is need to please consumers for profit
Advantages of market economy
efficiency, sustainability, economic growth, high standard of living, economic freedom
Disadvantages of market economy
equity, especially when viewed as equality of outcome rather than equality of opportunity; security (unemployment), resource conservation, morally questionable practices (selling goods or drugs not properly tested)
mixed economy
combines a market economy with significant government involvement and elements of tradition
Advantages of mixed economy
state provides essential services, low competition, high choices
Disadvantages of mixed economy
heavy taxes, high government control can add costs and discourage new business enterprises
The role of a government
establishes and enforces rules that improve market performance; provides important goods and services that private individuals tend not to purchase; helps improve economic security, equity, and sustainability