Chapter 2

1. Chapter 2 Answering the 3 Basic Economic Questions

2. Systems • Because of scarcity- societies choose a system • Economic system- method used to produce and distribute goods/services • 3 basic questions must be answered • 1. What goods/services should be produced • 2. How should goods/services be produced • 3. Who consumes goods/services.

3. What • Must meet need and wants. • “Guns vs Butter “ questions- allocation • Defense • Education • Welfare • Consumer goods • Ultimately- opportunity costs

4. How • How to use resources- • Producing Energy- oil, solar, nuclear? • Teaching- 20 or 50 students to a class • Agriculture- Large corporate farms or small family farms • LAND/LABOR/CAPITAL all figured into decision • Figure 2.1 illustrates- efficiency/best way • Technology impact?

5. WHO • U.S. produces many, many goods and services • Remember quantities/resources are not unlimited. • How are things divide up or allocated? • Usually by distribution of income in a society. • FACTOR PAYMENTS- income received by providing land, labor, capital or entrepreneurship

6. WHO • Landowners receive rent • Workers receive wages • Banks/institutions lend $ collect interest • Entrepreneurs profit off their business • Rent? Minimum wage? Distribution/allocation of goods resources determined by each society • Based- social values and goals to that society

7. Economic Goals & Social Values • Different societies answer the 3 basic questions differently • All try to achieve broad economic goals • 1. Efficiency-making most of resources • 2. Economic Freedom- govt regulation- freedom of choice • 3. Economic Security – safety net • 4. Predictability – knowledge that future will be okay • 5. Economic Equity-fair distribution of wealth • 6. Economic Growth – growing workforce and employment • 7. Innovation- increase standard of living for people