Unit 1.2(economic system)

Every Society needs to answer 3 type of questions

1.What to produce

2.How to produce.

3.For Who to produce

Centrally planned economy

This type of economy is where the government owns all the resources answers the 3 questions

Pros of a centrally planned economy

-Low unemployment(everyone has a job)

-Great job security

-Equal income which means no poor people

-Free Healthcare(not the best tho)!!!

Cons of a centrally planned economy

1.No incentive to work hard(rewards/punishment)

2.No need to be innovative or invent anything

3.No competition quality of goods are poor

4.Corrupt leaders

5.Few individual freedom

Chracterisitics of a free Market

• Little government involvement in the economy.

(Laissez Faire = Let it be)

-Individuals OWN resources and answer the

three economic questions.

• The opportunity to make PROFIT gives people

INCENTIVE to produce quality items

efficiently.

• Wide variety of goods available to consumers.

• Competition and Self-Interest work together to

regulate the economy (keep prices down and

quality up).

The invisible Hand

The concept that society’s goals will be met as individuals seek their own self interest
ex.if society wants fuel efficient cars…Profit seeking producers will make more.Competition between firms results in low prices, high quality and greater efficiency. Government is not involved.

Mixed Economies

A system with free markets but also some govt interventions

Productivity creates wealth

countries with free markets ,property rights,and The Rule of Law, have historically seen greater economic growth because they are more productive(A 3rd world would use old way grazing meanwhile a developed country would have a tractor.)