2. The Three Basic Questions... 2. How will the goods be produced? 1. What will be produced? 3. Who will get the goods & services?

3. Most needy or most money LimitedResources UnlimitedWants Choices WHAT G/S to produce? WHO will receive the G/S produced? [Eskimo/pygmy] Answers to the above determine: ECONOMIC SYSTEMS 3 BASIC ECONOMICQUESTIONS TRADITIONAL FREE MARKET COMMAND HOW will the G/S be produced?

4. Economic activity is based on ritual, habit and custom. Strengths Everyone knows their role. Little uncertainty over what to produce or how to produce. The question of For Whom to produce is answered by custom. Life is generally stable, predictable, and continuous. Weaknesses Tends to discourage new ideas. Lack of progress leads to lower standard of living.

5. Traditional Definition Progress: Is it stressed? Not at all Choice of jobs Motivation to produce How to produce (degree of specialization) What to produce For whom to produce Base values example

6. Tradition Definition Progress: Is it stressed? Choice of jobs Custom directed Motivation to produce How to produce (degree of specialization) What to produce For whom to produce Base values example

7. Tradition Definition Progress: Is it stressed? Choice of jobs Motivation to produce Traditional incentives How to produce (degree of specialization) What to produce For whom to produce Base values example

8. Tradition Definition Progress: Is it stressed? Choice of jobs Motivation to produce How to produce (degree of specialization) Traditional ways What to produce For whom to produce Base values example

9. Tradition Definition Progress: Is it stressed? Choice of jobs Motivation to produce How to produce (degree of specialization) What to produce Whatever was traditionally made For whom to produce Base values example

10. Tradition Definition Progress: Is it stressed? Choice of jobs Motivation to produce How to produce (degree of specialization) What to produce For whom to produce Distributed by custom Base values example

11. Tradition Definition Progress: Is it stressed? Choice of jobs Motivation to produce How to produce (degree of specialization) What to produce For whom to produce Base values Custom, tradition example

12. Tradition Definition Progress: Is it stressed? Choice of jobs Motivation to produce How to produce (degree of specialization) What to produce For whom to produce Base values example Rural areas

13. Government “rules”. Economic decisions are made at the top and the people are expected to go along with choices their leaders make. Strengths Change direction drastically in a relatively short time (The USSR went from an agrarian to industrial nation in a very short time). Weaknesses Not designed to meet the wants and needs of individuals. Lack of incentives to work hard leads to unexpected results. Large bureaucracy for economic planning. Not flexible in dealing with minor day to day problems. People with new or unique ideas are stifled. Fidel Castro Karl Marx

14. Command Definition Progress: Is it stressed? To some degree Choice of jobs Motivation to produce How to produce (degree of specialization) What to produce For whom to produce Base values example

15. Command Definition Progress: Is it stressed? Choice of jobs Government directed Motivation to produce How to produce (degree of specialization) What to produce For whom to produce Base values example

16. Command Definition Progress: Is it stressed? Choice of jobs Motivation to produce Limited social gain How to produce (degree of specialization) What to produce For whom to produce Base values example

17. Command Definition Progress: Is it stressed? Choice of jobs Motivation to produce How to produce (degree of specialization) Least cost method What to produce For whom to produce Base values example

18. Command Definition Progress: Is it stressed? Choice of jobs Motivation to produce How to produce (degree of specialization) What to produce Whatever government decides is needed For whom to produce Base values example

19. Command Definition Progress: Is it stressed? Choice of jobs Motivation to produce How to produce (degree of specialization) What to produce For whom to produce Those declared in need Base values example

20. Command Definition Progress: Is it stressed? Choice of jobs Motivation to produce How to produce (degree of specialization) What to produce For whom to produce Base values Cooperation, moral rewards Societal gain example

21. Command Definition Progress: Is it stressed? Choice of jobs Motivation to produce How to produce (degree of specialization) What to produce For whom to produce Base values example Cuba, China, North Korea

22. People and firms act in their own best interest to answer economic questions. Markets allow buyers and sellers to come together in order to exchange goods and services. Markets can adjust over time. Freedom exists for everyone involved. Relatively small degree of governmental influence. Decision making is decentralized. Variety of goods and services are produced. High degree of consumer satisfaction. Strengths Adam Smith “Invisible” hand

23. The primary weakness is deciding for whom to produce. The young, sick and old would have difficulty in a pure market environment. Markets sometimes fail. –Competition (monopolies may develop) –Resource mobility (resources are sometimes hindered from moving about) –Availability of information (producers often have more information than do consumers, which gives them an advantage)

24. Market Definition Progress: Is it stressed? Highly stressed Choice of jobs Motivation to produce How to produce (degree of specialization) What to produce For whom to produce Base values example

25. Market Definition Progress: Is it stressed? Choice of jobs Individual preference Motivation to produce How to produce (degree of specialization) What to produce For whom to produce Base values example

26. Market Definition Progress: Is it stressed? Choice of jobs Motivation to produce High self gain How to produce (degree of specialization) What to produce For whom to produce Base values example

27. Market Definition Progress: Is it stressed? Choice of jobs Motivation to produce How to produce (degree of specialization) Least cost method What to produce For whom to produce Base values example

28. Market Definition Progress: Is it stressed? Choice of jobs Motivation to produce How to produce (degree of specialization) What to produce Whatever is most profitable For whom to produce Base values example

29. Market Definition Progress: Is it stressed? Choice of jobs Motivation to produce How to produce (degree of specialization) What to produce For whom to produce Highest bidder Base values example

30. Market Definition Progress: Is it stressed? Choice of jobs Motivation to produce How to produce (degree of specialization) What to produce For whom to produce Base values Competition, material rewards, self gain, freedom example

31. Market Definition Progress: Is it stressed? Choice of jobs Motivation to produce How to produce (degree of specialization) What to produce For whom to produce Base values example United States, Mexico, W. Europe