How are resources, goods, and services allocated? Economic Systems How are resources, goods, and services allocated?

Review Most everything we want is scarce Therefore we need to make choices But every choice involves costs So we need to choose wisely In order to choose wisely we need to think When thinking we need to use facts to compare costs and benefits

Individual Decisions It’s hard enough to manage your own decisions So many options So many factors But at least it’s only you

How does a whole society handle making decisions? What decisions need to be made? What is made? How is it made? Who makes it? How is it distributed? How is it consumed? And who makes all these decisions?

What we need is a system Organized means by which questions of production and allocation are answered L1 questions, plus ‘how,’ all answered by an Economic System Broad social goals establish ‘why’ it’s that way

Basic Factors of Production Land Labor Capital Entrepreneurship

Three Basic Systems Traditional Market Command

Traditional Factors of Production employed based on tradition Inflexible Little room for movement or change

Market Private individuals and firms make most decisions Production, allocation, and consumption highly dynamic

Command Production & allocation based on government’s decisions Little flexibility Little room for individual enterprise

Costs & Benefits Each system has strengths and weaknesses Social and individual values determine which is best for a given people What do you value?

Characteristics of a Market Economy Private Property Free Enterprise Self-Interest Competition System of Markets and Prices Limited Government