Economic Systems Answering the Three Economic Questions E

Economic Systems: Answering the Three Economic Questions E. 6

Objectives O Students will… O Identify the three economics questions of what to produce, how to produce it, and who consumes what is produced. O Analyze societal values that determine how a country answers the three economic questions.

Review O Quick review: O What are trade-offs? O What is opportunity cost? O What is thinking at the margin? O What does the PPF show/illustrate? (Hint: It’s more than one thing. )

Growth O Which way will the PPF shift to show growth? O Decrease in growth? O What causes the curve to shift?

Economic System O The method used by a society to produce and distribute goods and services. O Which economic system a society uses depends on that society’s goals and values. O Because economic resources are limited, every society must answer three key economic questions: O What goods/services should be produced? O How should these goods and services be produced? O Who consumes these goods and services?

What goods and services should be produced? O Each society must decide what to produce in order to satisfy its needs and wants. O Food and shelter O National defense, public education, health, welfare, consumer goods O “Guns or butter”

How should goods and services be produced? O How to use our resources to produce goods and services O Should be produce electricity with oil, solar power, or nuclear power? O 20 students in a class or 50? O Large corporate farms or family farms? O Factors of production can be combined in various way to produce wants and needs.

Who consumes goods and services? O Who gets to drive a luxury car? Who has to take the bus? O Who goes to a concert? Who stays at home? O Who gets access to good education? O Societies have to decide how to distribute the available goods and services. O Determined by how societies choose to distribute income O Factor Payments: the income people receive for supplying factors of production (land, labor, capital, entrepreneurship)

Economic Goals and Societal Values O Different societies answer these three questions based on the importance they attach to various economic goals. (all answer differently) O Economic Efficiency – making the most of resources O PPF and underutilization O Scarce resources – try to maximize what they can get for the resources they have to work with. O If a society can accurately assess what to produce, it increases its economic efficiency.

Economic Freedom O Freedom from government intervention in the production and distribution of goods and services O The economic systems of different nations allow different degrees of economic freedoms. (competition)

Economic Security and Predictability O Assurance that G/S will be available, payments will be made on time, and a safety net will protect individuals in times of economic disaster. O Elderly, unemployed, other economic disadvantages O Safety net – gov’t programs that protect people from experiencing unfavorable economic conditions.

Economic Equity O Fair distribution of wealth O Many people believe in equal pay for equal work, but society does not value all jobs equally O Lawyers > nurses, computer programmers > truck drivers O Not everyone is able to work (disabled)

Economic Growth and Innovation O Innovation leads to economic growth, and economic growth leads to a higher standard of living. O Nation’s economy must grow for a nation to improve its standard of living – level of economic prosperity. O Growing population

Other goals O Environmental improvement and protection O Full employment O Universal healthcare O All nations must prioritize their goals O Achieving any economic goal comes only with some kind of economic tradeoff

Surviving on a Desert Island Activity O You also need to consider the societal values we discussed today: O Economic Efficiency O “”Freedom O “”Security O “”Predictability O “”Equity O “”growth/innovation O Prioritizing your goals (trade-offs)