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Who or what decides what you get?. Economic Systems. Who Gets What? How Do Societies Decide?. Every society must answer three fundamental economic questions: what to produce, how, and for whom?
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Who or what decides what you get? Economic Systems
Who Gets What? How Do Societies Decide? • Every society must answer three fundamental economic questions: what to produce, how, and for whom? • In answering the three economic questions, every society develops an economic system: a way of coordinating the production and consumption of goods and services
Who Gets What? How Do Societies Decide? • How societies answer these questions depends on their economic goals: • freedom, efficiency, equity, growth, security, and stability. • Societies differ in the degree of importance they attach to each goal. Progress towards one goal can sometimes be achieved only at the expense of another.
Economic Goals • economic freedom: the ability to make our own economic decisions without interference from the government. • economic equity: the fair and just distribution of society’s wealth • What is “fair” and “just”? • economic growth: when an economy produces more and better goods and services
Economic Goals • economic security: basic needs like food, shelter, and health care are provided for everyone. • economic stability: the goods and services we count on are there when we want them • Electricity on demand, grocery stores stocked, etc. • economic efficiency: an economy makes the most of its resources, including full employment (when all who want to work can find jobs)
Economic Goals • freedom efficiency equity growth security stability • How would you personally rank these goals in order of importance?
The Factor Market • In the factor market, households sell their land, labor, and capital to firms. • factor payments: the funds paid to households in exchange for these factors • If you have ever received a paycheck, you received a factor payment.
Mixed Economy • Today, all economies are mixed economies in which the government takes some role. • At minimum, they establish a legal system to enforce laws, and a stable system of currency. • They can also step in to regulate firms to ensure worker and consumer safety, limit pollution, etc. • Finally, they can provide certain goods or services that the market otherwise would not – things like public works (dams, highways, sewer systems, etc.)
Government’s Role • In addition to public works and services, the government in many countries also provides payments like social security and welfare checks, food stamps, etc. • transfer payments: money, collected in the form of taxes and paid to others by the government in the form of benefits
The Mixed Economy Continuum • Mixed economies vary in their degree of freedom – from free to repressed. • In 2008, the Heritage Foundation and the Wall Street Journal published their annual Index of Economic Freedom…
A Free Enterprise System • In a free enterprise system, as in the United States, individuals own the factors of production and make decisions about how to use those factors within the framework of the law. • Seven key characteristics: economic freedom, competition, equal opportunity, property rights, binding contracts, profit motive, and limited government
The Power To Choose • What economic changes does Estonia's former prime minister argue gave his country one of the freest economies in the world? • Which economic change do you think was most crucial in Estonia's case?
