1. Why does a country have to develop an economic system?
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Why does a country have to develop an economic system?
Because of the scarcity of economic resources, every country has to develop an economic system that answers how resources will be used and who will receive them.

3. Objectives
Describe the three basic economic questions each country must answer to make decisions about using their resources.
Contrast the way a market economy and a command economy answer the three economic questions.

4. The Main Idea
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.

5. Key Concepts
Basic Economic Questions
Different Types of Economies

6. Key Terms
the study of how individuals and groups of individuals strive to satisfy their needs and wants by making choices
economics

7. Key Terms
economic systems
the methods societies use to distribute resources
an economic system in which economic decisions are made in the marketplace
market economy

8. Key Terms
the amount of money given or asked for when goods and services are bought or sold
price
the amount of goods and services that producers will provide at various prices
supply

9. Key Terms
the amount or quantity of goods and services that consumers are willing to buy at various prices
demand
the point at which the quantity demanded and the quantity supplied meet
equilibrium price

10. Key Terms
an economic system in which a central authority makes the key economic decisions
command economy
mixed economy
an economy that contains both private and public enterprises

11. Basic Economic Questions
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

12. Basic Economic Questions
What should be produced?
How should it be produced?
Who should share in what is produced?
Deciding to use a resource for one purpose means giving up the opportunity to use it for something else.
This is called opportunity cost.
The methods and labor used as well as the quality of items produced are important factors.
In most societies, people can have as many goods and services as they can afford to buy.

13. Different Types of Economies
Different economic systems answer the three basic economic questions in different ways.
economic systems
the methods societies use to distribute resources

14. Market Economies
A market economy can also be called a private enterprise system, the free enterprise system, or capitalism.
market economy
an economic system in which economic decisions are made in the marketplace

15. Characteristics of a Market Economy
Market Economies
Characteristics of a Market Economy
Resources are privately owned
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
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

16. What is the role of the individual within the free enterprise system?
Reading Check
What is the role of the individual within the free enterprise system?
In a market economy, individuals are responsible for being informed and making carful decisions.

17. The lower the price, the more consumers will buy.
Market Economies
The higher the price for goods or services, the less consumers will buy.
The lower the price, the more consumers will buy.
price
the amount of money given or asked for when goods and services are bought or sold

18. There is a relationship between price, supply, and demand.
Market Economies
There is a relationship between price, supply, and demand.
supply
the amount of goods and services that producers will provide at various prices
demand
the amount or quantity of goods and services that consumers are willing to buy at various prices

19. Market Economies
Supply and demand interact with each other to form the equilibrium price.
equilibrium price
the point at which the quantity demanded and the quantity supplied meet

20. Supply, Demand, and Equilibrium
Figure 2.1
Supply, Demand, and Equilibrium

21. Supply, Demand, and Equilibrium
Figure 2.1
Supply, Demand, and Equilibrium

22. Supply, Demand, and Equilibrium
Figure 2.1
Supply, Demand, and Equilibrium

23. Market Economies
Competition among similar businesses is one of the basic characteristics of a free enterprise system.
Profit motive is the desire to make a profit.

24. Command Economies
In a command economy, the government owns and controls all the resources and businesses.
command economy
an economic system in which a central authority makes the key economic decisions

25. Characteristics of a Command Economy
Command Economies
Characteristics of a Command Economy
The government dictates what will be produced, how it will be produced, and who will get the goods
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

26. What is the role of the individual within the free enterprise system?
Reading Check
What is the role of the individual within the free enterprise system?
In a command economy, individuals have fewer responsibilities because the government handles much of the decision making.

27. Command Economies
A moderate command economy is also known as socialism.
In a moderate command economy, there is some form of private enterprise, but the state owns major resources.

28. Mixed Economies
Most nations have a mixed economy, which combines elements of capitalism and socialism.
mixed economy
an economy that contains both private and public enterprises.

29. How does a market system decide what will be produced?
A market system decides what is to be produced through supply and demand in the marketplace.

30. In a market system, what determines how many goods and services an individual can buy?
It is through one’s income—mostly generated by working.

31. Some nations can produce more goods with fewer workers than other countries that have more workers. How can that be true?
More technology is used in the country with fewer workers, increasing worker productivity.

32. Activity
Please complete “After You Read” on pages 26 #1-4 and 31 #1-5.
When you finish with this please answer the “Read to Learn” at the beginning of each section.

33. Objectives
Describe the three basic economic questions each country must answer to make decisions about using their resources.
Contrast the way a market economy and a command economy answer the three economic questions.

34. End of