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Describe the three basic economic questions each country must answer to make decisions about using their resources.

The Main Idea

Scarcity of economic resources forces every country to develop an economic system that determines how resources will be used. Each economic system has its advantages and disadvantages.

Key Concepts

Basic Economic Questions

Different Types of Economies

Focus on real life, page 17

Which seems the most like the economic system in the US?

The three economic questions

All economies (or nations) of the world face the basic economic problem of scarcity of resources.

Each country must decide how the available resources will be used to meet the needs and wants.

*Basic Economic Questions*

What goods and services should

beproduced?

How should it be produced?

What needs and wants will be

satisfied with the goods and services

produced?Deciding to use a resource for one purpose means giving up the opportunity to use it for something else.

What is this called?

The methods and labor used as well as the quality of items produced are important factors.

In most societies, people can have as many goods and services as they can afford to buy.

1. What to produce?

Nations differ in the type and amount of resources available. Can you think of any?

Nations differ in their needs. Can you think of any?

Very difficult – if a country spends too much in one area, there may not be enough resources to meet other needs.

2. How to produce?

Nations must decide what combination of resources will best suit its circumstances.

Ex- we still are a great agricultural (farming) country but do it much more efficiently now. How?

Two hundred years ago – 80% pop farmed

Today – 3% pop farms but produce more goods.

3. What needs and wants to satisfy?

A country must determine which wants and needs are most critical when deciding what to produce…because we know a country can’t produce everything so they must choose.

Different Types of Economies

Different economic systems answer the three basic economic questions in different ways.

A country usually follows one of the following types of economies

economic systemsA nation’s plan for answering the three economic questions

4 main types of Economic Systems

Command Economy

Market Economy

Traditional Economy

Mixed Economy

You teach the teacherWith your assigned partner:– Create a PowerPoint presentation with a title

slide

– Topic: You need to teach me about the four different types of economies and want to use the PP as a guide.

– Don’t forget! PowerPoint slides aren’t meant to have tons of text, USE BULLETS!

– Add pictures, word art, and animations to make the presentation more exciting.

Command Economies

In a command economy, the government owns and controls all the resources and businesses.

command economyThe resources are owned and controlled by the government.

Command Economies

Characteristics of a Command Economy

The government dictates what will be produced, how it will be produced, and who will get the goods

There is little choice of what to buy

Goods are not considered necessities

Prices are controlled by the state

There is no competition and little incentive to produce a better product

Highly skilled workers may earn the same as low-skilled workers

Command Economies

In a moderate command economy, there is some form of private enterprise, but the state owns major resources.

Market Economies

A market economy can also be called a capitalism.

market economyThe resources are owned and controlled by the people of the country

Market Economies

The 3 economic questions are answered by individuals through buying and selling in the marketplace

Marketplace – supermarket, Internet, mall, business office or even a flea market…pretty much anywhere where money is traded

Market Economies

Competition among similar businesses is one of the basic characteristics of a free enterprise system.

Market EconomiesCharacteristics of a Market Economy

Resources are privately owned

Citizens can own their own homes, land, and businesses

Business owners decide how their businesses will be run

Business owners decide what to produce and sell

Business owners decide what to charge

Government works to promote free trade and prevent unfair trade practices

Consumers choose their occupations and where to live

There is an uneven distribution of income

Traditional Economies

A traditional economy is “old school”

No progression to new trends.

Less developed countries use it.

traditional economyGoods and services are produced the way it has always been done.

Mixed Economies

Most nations have a mixed economy, which combines elements of capitalism and socialism (public ownership) along with the idea of the government still having the final say

mixed economyCombines elements of the command and market economies.

The U.S. Economic System•U.S. is a Market Economy

•Individual owners are free to decide what to produce and buy.

•Individual freedom is vital to the success of the U.S economy.

capitalismThe private ownership of resources by individuals, rather than by the government.

Other names

The US economy is also known as a free enterprise or private enterprise.

Why do you think it’s called free or private enterprise?

***The U.S economic system is based on four important principles:

Private Property

Freedom of Choice

Profit

Competition

(leave some space after each of these, going to talk about them)

Private Property-

Means you can own, use, or dispose of things of value.

In the U.S. you can own anything you want (as long as it’s legal) and do what you want with it

Freedom of Choice-

You can make decisions independently and must accept the consequences of those decisions.

Only when individual decisions harm others will the government regulate freedom of choice

Profit-

Is the money left from sales after all of the costs of operating a business have been paid.

Profit is at the heart of the private enterprise system…people enjoy the challenge of running their own business and want to do well and also make a profit.

Competition-•Forces businesses to improve products, keep costs low, provide effective customer service and search for new ideas.

•If they don’t—who will????

competitionThe rivalry among businesses to sell their goods and services

Competition Article

1. In a market system, what determines how many goods and services an individual can buy?

It is through one’s income—mostly generated by working.

2. What type of economy does the US have?

Market economy. Decisions are made in the market rather than by the government.