ES - Economic Systems Overview

Economic Systems

Introduction

In this unit, you will be introduced to the different ways societies and nations answer the three basic economic questions. What goods or services should be produced? How should these goods and services be produced? For whom are these goods and services being produced?

Learning Objectives

In this module, students should be able to:

  1. Learn and identify characteristics about traditional, command, market, and mixed economies and how they answer the basic questions.
  2. Learn and identify characteristics about the economic and social goals of freedom, security, freedom, security, equity, growth, efficiency, price stability, full employment, and sustainability.
  3. Learn and identify what roles the government plays in mixed economic systems.

Key Terms

The following key terms will help you understand the content in this module.

  • Economic System - the institutions, producers, consumers, and other groups that answer the three basic economic questions in a society
  • Traditional Economy - economic system where roles are handed down from generation to generation and the basic questions are answered as they have been since the distant past
  • Command Economy - the government controls the means of production, property, and makes all decisions about production and consumption.
  • Market Economy - producers and consumers make economic decisions and the factors of production are privately owned
  • Mixed Economy – producers, consumers and the government share economic decision making
  • Profit Motive - drives production decisions in a market economy
  • Consumer sovereignty - individuals indicate their choices by their spending decisions
  • Equity - fairness in the access to goods and services
  • Efficiency – An economy uses all of its resources to produce goods and services that are desired and does not waste resources on unwanted products
  • Sustainability – When an economy keeps growing over time
  • Public Goods and Services - items such as schools, defense, police and fire protection, parks, roads, and street lighting provided by the government.
  • Income - money a person makes from working
  • Market failure - when the market doesn’t provide a good or service society needs
  • Externality - when your use of a good hurts or helps someone else
  • Regulation - adding rules or laws established by the government such as taxes, tariffs, subsidies, Federal Reserve guidelines, environmental protections, safety guidelines, and consumer protection.
  • Deregulation - taking away rules or laws on an industry such as deregulation of transportation.

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