How do economic systems answer your basic economic questions?

What to produceHow to ProduceFor whom to produce

Answers the basic economic questions by rituals, habits, religious beliefs, and customs

Individual roles are determined the elders

Examples: herding cattle, hunting and gathering, subsistence farming

There is little or no uncertainty- everyone knows the role they play

Life is generally stable, predictable, and continuous

Tends to discourage new ideas and new ways of doing things

Lack of progress lowers the standard of living

1. What to produce?Whatever customs and traditions dictate

2. How to produce?Whatever customs and traditions dictate

3. For whom to produce?Whatever customs and traditions dictate

Basic Economic Questions are answered by the government

Only two Command Economies left in World-Cuba and North Korea

It is associated with communism and socialism

The government has total control over production and its factors, thus the economy can change rapidly. Whatever is needed most will be produced

Example is collective farms which are owned and operated by the central government. Money made goes to the government

Free education, free healthcare, and other public services

Economy is designed to meet needs not wants

There is no incentive to work hard—people don’t often lose their jobs so they do the bare minimum

Economy supports a large bureaucracy (government) which means decision making is slow, costs of production are high, and there is no flexibility

There is no reward for initiative

1. What to produce?Whatever the government says to produce

2. How to produce?However the government tells you to produce

3. For whom to produce?For whomever the government tells you to produce

Basic economic questions are answered by consumers

Laissez-faire is a pure market economy meaning “allow to do”. The government has little or no power in what is produced or sold.

Free-enterprise system- business owners set their own prices and sell their own goods.

Adjusts to change based on consumer wants

High level of individual freedom

Low level of government interference

Because individuals make the decisions, everyone has a voice in the way economy runs

Wide variety of available goods and services

Many choices=high degree of consumer satisfaction

Poverty: only those with money can participate

Market does not provide for people’s basic needs. Government must attempt to do this (Think about Katrina)

High degree of uncertainty: people lose their jobs and businesses fail

Greed based system puts profits before people (think about loss of jobs here. What caused it?)

Are they truly Free market economies?

Does the government regulate businesses?

Does the government control any businesses?

1. What to produce?

2. How to produce?