Chapter 2 Economic Resources and Systems

Section 2.2 Economic Systems

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Read to Learn The Main Idea Describe the three basic economic questions Scarcity of economic resources forces every each country must answer to make decisions country to develop an economic system that about using their resources. determines how resources will be used. Each economic system has its advantages and Contrast the way a market economy and a disadvantages. command economy answer the three economic questions.

Key Concepts Key Terms Basic Economic Questions the study of how individuals and Different Types of Economies groups of individuals strive to satisfy economics their needs and wants by making choices

1 Key Terms Key Terms the amount of money given or economic the methods societies use to price asked for when goods and services systems distribute resources are bought or sold

an economic system in which the amount of goods and services market economic decisions are made in the supply that producers will provide at economy marketplace various prices

Key Terms Key Terms the amount or quantity of goods and an economic system in which a command demand services that consumers are willing central authority makes the key economy to buy at various prices economic decisions

the point at which the quantity equilibrium mixed an economy that contains both demanded and the quantity supplied price economy private and public enterprises meet

Basic Economic Questions Basic Economic Questions

There are three basic What should be How should it Who should produced? be produced? share in what is Economic questions. economics the study of how Deciding to use a The methods and produced? individuals and groups of resource for one labor used as well In most societies, individuals strive to satisfy purpose means as the quality of people can have as their needs and wants by giving up the items produced are many goods and making choices opportunity to use it important factors. services as they can for something else. afford to buy. This is called opportunity cost.

2 Different Types of Economies Market Economies

Different economic A market economy economic systems market economy systems answer the the methods societies use can also be called a an economic system in three basic economic to distribute resources private enterprise which economic decisions questions in different system, the free are made in the marketplace ways. enterprise system, or capitalism.

Market Economies Market Economies Characteristics of a Market Economy Resources are privately owned The higher the price price Citizens can own their own homes, land, and businesses for goods or services, the amount of money Business owners decide how their businesses will be run the less consumers given or asked for when Business owners decide what to produce and sell will buy. goods and services are Business owners decide what to charge bought or sold Government works to promote free trade and prevent unfair The lower the price, trade practices the more consumers Consumers choose their occupations and where to live will buy. There is an uneven distribution of income

Market Economies Market Economies

There is a Supply and demand supply equilibrium price relationship between the amount of goods and interact with each the point at which the price, supply , and services that producers will other to form the quantity demanded and provide at various prices demand . equilibrium price . the quantity supplied meet demand the amount or quantity of goods and services that consumers are willing to buy at various prices

3 Figure 2.1 Supply, Demand, and Equilibrium Figure 2.1 Supply, Demand, and Equilibrium

Figure 2.1 Supply, Demand, and Equilibrium Market Economies

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

Profit motive is the desire to make a profit.

Command Economies Command Economies

Characteristics of a Command Economy In a command command economy The government dictates what will be produced, how it will be produced, and who will get the goods economy , the an economic system in government owns which a central authority There is little choice of what to buy and controls all the makes the key economic Goods are not considered necessities decisions Prices are controlled by the state resources and There is no competition and little incentive to produce a businesses. better product Highly skilled workers may earn the same as low-skilled workers

4 Command Economies Mixed Economies

A moderate command economy is also known Most nations have a mixed economy as socialism. mixed economy , an economy that contains which combines both private and public elements of capitalism enterprises. In a moderate command economy, there is and socialism. some form of private enterprise, but the state owns major resources.

1. How does a market system decide what will 2. In a market system, what determines how be produced? many goods and services an individual can buy? A market system decides what is to be produced through supply and demand in the It is through one’s income—mostly generated marketplace. by working.

End of Chapter 2 Economic Resources and Systems

3. Some nations can produce more goods with Section 2.2 fewer workers than other countries that have more workers. How can that be true? Economic Systems More technology is used in the country with fewer workers, increasing worker productivity.

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