what is an economic system?
the structure a society uses to pay its bills and develop its choices
three key questions *****
- what goods and services should be produced?
-how should the goods and services be produced? - who consumes the goods and services?
what goods and services should be produced?
- each society must decide what to produce in order to satisfy needs and wants
- the more you produce of some goods and services the less you produce of other goods and services (trade-offs and opportunity cost)
how should the goods and services be produced>
- there are countless ways to create all of the things we want and need, which all require capital (tools, equipment), land, and labor
-ex. size and organizations of facilities, resources to use, time and effort communication
who consumes the goods and services?
- how are goods and services divided up?
- how do societies distribute income?
- how do we decide the worth of a factor of production?
- factors of payment: income people receive for supplying factors of production (rents, wages, profits)
- society places different values on diff. resources and products
- ex. choices in products, the value/price of products, access to service
econimic goals and societal values
- economic efficiency
- economic freedom
- economic security and predictability
- economic equity
- economic growth and innovation
- additional goals
economic efficiency
- dont waste - get the most out of what you put in it
- the quality of economic activity in which resources are used and goods distributed in a way that generates the greatest benefits to produce and consumers
economic freedom
- you get to make your own economic choices
economic security and predictability
- assuring people that goods and services will be available
- providing aid for retirement and in different times (social security, unemployed, welfare)
economic equity
an equal opportunity to buy something someone else does
economic growth and innovation
- more is better, more production
standard of living
- how well you live economically
- the material well-being of the avg. person in a given pop.
traditional economy
- simple economy
market economy
- you make your own decisions
centrally - planned (command economy) - Communism
the govt. owns all resources, the govt. decides what goods and services will be produced
mixed economy
combines the advantages and disadvantages of three diff. types of economies: market, command, and traditional.
- govt. has a large role in the military, international trade, and national transportation
- driven by the motivation of self interest of individuals
- allows federal govt. to safeguard its people and market
market
a place where parties can gather to facilitate the exchange of goods and services
specialization
concentrating on one area of work
buying and selling
this person sells something and another buys it
free economy market
make your own decisions
households and firms
- firms produced goods and services
- households receive the goods and services
- firms factor payments - rent, interest, profit and wages
- households - services of factors of production
factor market
where you pick up the things you need to produce
product market
where you produce/sell the thins you make
self - regulating nature
-people want to make as much profits from their product as possible, this creates competition for producers, make better product to compete with other producers
- create the ‘’ invisible hand’’
