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Economic Resources and Systems

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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 each country must answer to make decisions about using their resources.
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.
Contrast the way a market economy and a 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

price

the amount of money given or asked for when goods and services are bought or sold

economic systems

the methods societies use to distribute resources

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

market supply economy

Key Terms

demand

Key Terms

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

command economy

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

equilibrium price mixed economy

  • Basic Economic Questions
  • Basic Economic Questions

What should be produced?
How should it be produced?
Who should share in what is produced?

There are three basic

Economic questions.

economics

the study of how individuals and groups of individuals strive to satisfy their needs and wants by making choices

Deciding to use a resource for one purpose means giving up the opportunity to use it for something else.
The methods and labor used as well as the quality of
In most societies, people can have as many goods and services as they can afford to buy. items produced are important factors.

This is called opportunity cost.

2

Different Types of Economies

Market Economies

  • Different economic
  • A market economy

can also be called a private enterprise system, the free enterprise system, or capitalism.

economic systems

the methods societies use to distribute resources

market economy

an economic system in which economic decisions are made in the

systems answer the

three basic economic questions in different ways.

marketplace

  • Market Economies
  • Market Economies

Characteristics of a Market Economy

Resources are privately owned

The higher the price

for goods or services, the less consumers will buy.

price

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

the amount of money given or asked for when goods and services are bought or sold

The lower the price, the more consumers will buy.

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

  • Market Economies
  • Market Economies

  • There is a
  • Supply and demand

interact with each other to form the

supply equilibrium price

relationship between

price, supply, and demand.

the amount of goods and services that producers will provide at various prices the point at which the quantity demanded and the quantity supplied meet

equilibrium price.

demand

the amount or quantity of goods and services that consumers are willing to buy at various prices

3

  • Figure 2.1
  • Figure 2.1

  • Supply, Demand, and Equilibrium
  • Supply, Demand, and Equilibrium

Figure 2.1

Market Economies

Supply, Demand, and Equilibrium

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 economy, the

government owns and controls all the resources and businesses.

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

command economy

an economic system in which a central authority makes the key economic decisions

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

4

  • Command Economies
  • Mixed Economies

A moderate command economy is also known as socialism.
Most nations have a

mixed economy,

which combines

mixed economy

an economy that contains both private and public enterprises.

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

1. How does a market system decide what will be produced?
2. In a market system, what determines how many goods and services an individual can buy?

A market system decides what is to be produced through supply and demand in the marketplace.
It is through one’s income—mostly generated by working.

End of Chapter 2

Economic Resources and Systems

3. Some nations can produce more goods with fewer workers than other countries that have more workers. How can that be true?

Section 2.2

Economic Systems

More technology is used in the country with fewer workers, increasing worker productivity.

5

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