 Every nation’s economy must answer four basic questions: 1. What goods and services and how much of them should be produced? -if more of one item is produced then less of something will be produced because of scarcity 2. Who should produce them? -different people do different jobs (career choice) 3. How should they be produced? -what combination of available resources will get the job done at the least price 4. Who should share in their use? -distribution of goods and services throughout all members of an economic system

 Answers the four basic questions according to tradition  Things are done as they have always been done  Economic decisions are based on customs, beliefs, religion, and ways of doing things that have been handed down from generation to generation  Found in very limited parts of Asia, the Middle East, Africa, and Latin America

 The individual has very little influence over how the four basic questions are answered  The government controls the factors of production and makes all decisions about their use  The government decides how resources are used at each stage of production, the distribution of goods and services, and who will do what  The government guides people into certain jobs through a series of regulations about education available to different groups of people

 No government intervention  Individuals own the factors of production and decide the answers to the four basic questions  Economic decisions are made through free interaction of individuals looking out for their own best interest  The market is not a place, but a freely chosen activity between buyers and sellers of goods and services

 Buyers and sellers choose to do business with those who best satisfy their needs  The exchange of goods can be local to worldwide  Producers in the pure market system will decide how to use their resources based solely on market signals from the market  People are also free to sell their labor- they make take, refuse, or change jobs whenever they choose

 With the exception of the traditional system, almost all economic systems today are mixed  Have characteristics of the command and pure market economies  The economy can favor one system over the other Example: China is a mixed system that favors the command over the market, whereas, the United States favors the market over the command

 We must be informed  Have an understanding of what part the citizen plays  Have an understanding of how the citizen affects the economy

 The US economy -supply, demand, and prices help people make decisions and allocate resources -most decisions are made by individuals that are looking out for their own best interest -the choices that the consumers make affects the products that businesses make -the products offered and their prices affects the decision the consumer makes -based on the capitalist system where the private citizen owns most, if not all, means of production -also based on free enterprise where businesses are allowed to compete for profit with little interference from the government

 About how the economy works and developing an awareness of other features of the economy -reading, watching and listening to news reports -gathering information about the activities of business and government

 Incentives influence economic behavior  Knowing how the incentives work helps individuals make wise choices  Examples: price, grants, bonus pay, lower credit card interest, etc.

 The role of government should be to maintain competitive markets while not intervening for the benefit of one group over another  Provide services that the private sector does not provide such as defense and a justice system  Make markets competitive, which forces business to use resources more efficiently while providing a low price  Rewards or punishes for certain actions -carrots dangled are the incentives that the government gives, whereas, sticks are the taxes used to discourage actions -Examples: carrots- grants for college sticks- tax on alcohol

 When you make decisions based on opportunity cost, you are making a rational decision, where you choose the greatest value available to you  By purchasing goods and services that can best satisfy your wants for the lowest cost  Not every one makes the same decision: rational choice is perceived  Use scarce resources wisely