Answering the 3 Basic Economic Questions Chapter 2

Systems Because of scarcity- societies choose a system Economic system- method used to produce and distribute goods/services 3 basic questions must be answered 1. What goods/services should be produced 2. How should goods/services be produced 3. Who consumes goods/services.

What Must meet need and wants. “Guns vs Butter “ questions- allocation Defense Education Welfare Consumer goods Ultimately- opportunity costs

How How to use resources- Producing Energy- oil, solar, nuclear? Teaching- 20 or 50 students to a class Agriculture- Large corporate farms or small family farms LAND/LABOR/CAPITAL all figured into decision Figure 2.1 illustrates- efficiency/best way Technology impact?

WHO U.S. produces many, many goods and services Remember quantities/resources are not unlimited. How are things divide up or allocated? Usually by distribution of income in a society. FACTOR PAYMENTS- income received by providing land, labor, capital or entrepreneurship

WHO Landowners receive rent Workers receive wages Banks/institutions lend $ collect interest Entrepreneurs profit off their business Rent? Minimum wage? Distribution/allocation of goods resources determined by each society Based- social values and goals to that society

Economic Goals & Social Values Different societies answer the 3 basic questions differently All try to achieve broad economic goals 1. Efficiency-making most of resources 2. Economic Freedom- govt regulation- freedom of choice 3. Economic Security – safety net 4. Predictability – knowledge that future will be okay 5. Economic Equity-fair distribution of wealth 6. Economic Growth – growing workforce and employment 7. Innovation- increase standard of living for people