The Three Basic Economic Questions

The Three Basic Economic Questions 1. What to Produce? what items to produce and how much of each item to produce using its productive inputs in the most efficient manner. 2. How to Produce? One the decision has been made regarding what to produce. each country must choose which resources productive inputs will be used and in what combinations3. For Whom to Produce? Should the productive outputs be distributed based on social customs, personal wealth and ownership, or mandated by the government? mandated government- china no youtube or facebook (social customs- north korea the worst)Basic Economic Systems Traditional Economy One in which economic decisions depend upon social customs and rarely changes from generations to generation. in these societies, religion and culture are more important than personal wealth and material possessions. ( north korea, india marriage) conncected to for whom to produce in traditionMarket Economy One in which economic decisions are based on private own ership, where individuals are free to pursue their own self interest. This system is often referred to as capitalism. individuals use their incomes to purchase goods and services. The more income one earns, the more purchasing power they have.Command Economy One in which all productive inputs are owned by the government and central planners within that government decide what items to produce and how much will be produced; how it will be produced and how output will be distributed based upon anticipated future needs of the economy. ex. China majority AfricaMixed Economy One that combines aspects of a market economy and a command econmy; the economy uses both markets and government to make decisions. Most countires  today fall under the mixed eonomly definition, however in varying degrees between private and public sector influence ex. Sweden, Canada, USA Economic SystemAdvantagesDisadvantagesTraditional Stability Emphasizes on spiritual and cultural aspects of lifePoverty Lack of i ndividual freedomsMarket Individual consumers determine what is produced and ultimately how much they are willing to pay.Encourages innovation and entrepreneurshipInstability in output due to changes in prices and/ or employment levels Private markets do not always consider the needs of society as a whole e.g. homeless shelters. If income is distributed based solely on earnings, some individuals might not earn enough to obtain the basic necessities of life. CommandMore even distribution of incomeCentral planners can focus on economic growth by directing resources in a specific direction.Lack of individual freedomsCentral planning difficulties and errors in judgmentInefficient use of resources due to the lack of profit to motivate the efficient use of resources