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START PREP
2.1 ANSWERING THE THREE ECONOMIC QUESTIONS
TEXTBOOK PAGE 23
THEN START READING SECTION
NOTES BEGIN AT 13.35
ECONOMICSMR. HOOD05 FEBRUARY 2014
2.1 ANSWERING THE THREEECONOMIC QUESTIONS
ECONOMICSMR. HOOD`S NOTES05 FEBRUARY 2014
SECTION FOCUSALL SOCIETIES MUST ANSWER THREE KEY ECONOMIC QUESTIONS ABOUT THE PRODUCTION AND CONSUMPTION OF GOODS AND SERVICES. HOW A SOCIETY ANSWERS THESE QUESTIONS DEPENDS ON HOW MUCH IT VALUES DIFFERENT ECONOMIC GOALS. FOUR DIFFERENT ECONOMIC SYSTEMS HAVE DEVELOPED IN RESPONSE TO THEE THREE QUESTIONS.
INTRODUCTION
WE HAVE LEARNT ABOUT SCARCITY
WE HAVE LEARNT THAT WE CANNOT HAVE EVERYTHING WE
WANT OR NEED
IN FACT, MANY PEOPLE
FAIL TO MEET BASIC NEEDS
WE LEARNT THAT SCARCITY FORCES US TO ANSWER HARD
QUESTIONS
COUNTRIES THEREFORE HAVE
ECONOMIC SYSTEMS
OBJECTIVE 1IDENTIFY THE THREE
ECONOMIC QUESTIONS OF WHAT TO PRODUCE, HOW TO
PRODUCE, AND WHO CONSUMES WHAT IS
PRODUCED
RESOURCES ARE LIMITED
SO WE HAVE 3 ECONOMIC QUESTIONS
WHAT GOODS AND SERVICES SHOULD BE
PRODUCED?
OR
HARD TO DISTINGUISH BETWEEN
NEEDS AND WANTS
EG: CONSUMER GOODS V HEALTH
EACH DECISION INVOLVES
AN OPPORTUNITY COST
HOW SHOULD THESE GOODS AND SERVICES BE
PRODUCED?
HOW TO USE RESOURCES?
COUNTLESS WAYS TO MAKE OR CREATE WHAT
WE WANT
WHO CONSUMES THESE GOODS AND
SERVICES?
TODAY WE HAVE THOUSANDS OF
CONSUMER GOODS
BUT QUANTITIES ARE
NOT UNLIMITED
DEPENDS OF FACTOR PAYMENTS, OR
SALARIES
OBJECTIVE 2ANALYZE THE SOCIETAL
VALUES THAT DETERMINE HOW A COUNTRY ANSWERS THE
THREE ECONOMIC QUESTIONS
DIFFERENT COUNTRIES ANSWER QUESTIONS
DIFFERENTLY
VARIOUS ECONOMIC GOALS
1 – ECONOMIC EFFICIENCY
MAKING THE MOST OF
RESOURCES
2 – ECONOMIC FREEDOM
FREEDOM FROM GOVERNMENT INTERVENTION
IN THE PRODUCTION + DISTRIBUTION OF GOODS
3 - ECONOMIC SECURITY AND
PREDICTABILITY
ASSURANCE THAT GOODS AND SERVICES WILL BE AVAILABLE, PAYMENTS WILL BE MADE ON TIME, AND A SAFETY NET WILL PROTECT INDIVIDUALS AT TIMES OF
ECONOMIC DISASTER
4 - ECONOMIC EQUITY
FAIR DISTRIBUTION OF
WEALTH
5 - ECONOMIC GROWTH
AND INNOVATION
INNOVATION LEADS TO ECONOMIC GROWTH, AND
ECONOMIC GROWTH LEADS TO A HIGHER STANDARD OF LIVING
6 - OTHER GOALS
SOCIETIES PERSUE ADDITIONAL GOALS, SUCH AS ENVIRONMENTAL
PROTECTION
OBJECTIVE 3EXPLAIN THE
CHARACTERISTICS OF TRADITIONAL COMMAND, AND
MARKET ECONOMIES, AND DESCRIBE THE SOCIETAL
VALUES THAT INFLUENCE THEM
THERE ARE FOUR DIFFERENT ECONOMIC
SYSTEMS…
… THAT ANSWER THE 3 ECONOMIC QUESTIONS
1 – TRADITIONAL ECONOMIES
RELIES ON HABIT CUSTOM OR RITUAL
TO DECIDE
NO ROOM FOR INNOVATION OR CHANGE
REVOLVES AROUND FAMILY
EG: AFRICAN COUNTRIES
2 – MARKET ECONOMIES
DECISIONS MADE BY INDIVIDUALS
BASED ON EXCHANGE,
OR TRADE
ALSO KNOWN AS FREE MARKET OR
CAPITALISM
EG: UNITED STATES
3 – COMMAND ECONOMIES
CENTRALLY PLANNED ECONOMIES
DECISIONS MADE BY GOVERNMENT
EG: CUBA, NORTH KOREA, RUSSIA
4 – MIXED ECONOMIES
MOST MODERN ECONOMIES
ARE MIXED
GOVERNMENT PLAYS A LIMITED
ROLE
EG: UNITED STATES
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