Economic systems

LO:

• Explain the 3 fundamental economics questions that all economic system are designed to address

• Distinguish between a planned, market, and mixed economic system

Economy

• the way in which society is organised to minimise the problem of scarcity

3 fund economics questions

1. what to produce?

   • must choose type & qty of goods & services to produce due to relative scarcity

   • determines how resources will be allocated

2. how to produce?

   • how to best combine resources to produce goods & services → most efficient

3. for whom to produce

   • how to distribute among pop

types of economics systems

3 types:

Market based economic system (Pure):

• individual own & control resources

• What: based on what consumers are willing to pay for (demand)

• firms aim: maximise profits

• How: method that will max profit for firms

• Who: anyone who can pay the price (Price rationing)

Planned economic system (Command):

• government owns & control resources

• What: determined by government

• How: determined by gov

• Who: determined by gov (non-Price rationing)

• e.g. North Korea

Mixed economic system:

• combo of market & planned economic system

• both private & public sector are involved in making economic decisions

• e.g. most if not all countries