The Three Economic QuestionsAnd how we answer them

1.What goods and services should be produced?

(Cars? Guns? Butter? Shoes? Corn? Rice? Bridges? Bikes? Houses? Computers?)

2. How should these goods and services be produced?

(by hand? By machine? Inefficiently? Efficiently?)

3. Who gets these goods and services?

(everyone? No one? A select few? Only those who can afford it?)

Standard of living – level of economic prosperity

The 4 market structures

Traditional EconomiesTraditions, rituals, habits and customs answer the economic questions in a traditional economy

Little innovation/change; slow to adapt new ideas

Examples: Amazon and African tribes, nomadic peoples

Market Economy / Capitalism / Free MarketEconomic system in which all three questions are answered by individuals

PROS: •extremely efficient; no resources are wasted•individuals are allowed to choose

CONS: •Pollution/environmental damage•The rich get rich, the poor get poorer•produces what people want, not what they need

Examples?

Gilded Age America

How the Other Half Lives: Studies among the Tenements of New York (1890)

Jacob Riis

What does this political cartoon suggest about government regulating business?

Command/Centrally planned EconomiesAll three economic questions are answered by the government alone

PROS: •more fair distribution of wealth •Get a lot done quickly

CONS:•low quality products•Little innovation•produces what people need, not what they want

Examples: any communist state or dictatorship;North Korea, Cuba, USSR

Mixed EconomyMarket/capitalist based system which the government regulates

Most modern economies are mixed economies

vs.

Legally obligated to serve ALL citizens (no matter where they are) at the same price and quality

…..not so much

Free Market/ Capitalist

Command/ Centrally planned

Traditional Mixed economy

Who controls the factors of production?

Who chooses what to produce?

Who decides who gets what goods and services?