The Three Basic Economic Questions and Purchasing Power Parity

the three basic economic questions are “what gets produced”, “how is it produces” and “who gets what is produced”. economic systems are the ways societies organise, allocate and distribute their resources, goods and services. every society must answer the three economic questions. a traditional or subsistence economy has self-sufficient producers and do not aim to make a profit. money is not used. 1. is answered by what is available through hunting, gathering and growing food. 2. is often influenced by customs and religion and 3. is shared. a market capitalist economy (australia) has producers that exchange g&s with consumers for money in a market. 1. is decided by needs and wants of consumers and the price they are willing to pay. 2. producers chose the most cost-effective production method. 3. is determined by who has the money to pay for it. majority of productive resources are owned by individuals and firms. a planned capitalist economy has individuals and firms who own the productive resources but the government decides 1, 2 and 3. a market socialist economy are answered in the same way as a market capitalist economy but productive resources are owned by the government (the state) on behalf of the country. in a planned socialist economy 1, 2 and 3 is decided by the government and their long and short term plans.

purchasing power parity (PPP) is a theoretical exchange rate that allows you to buy the same amount of goods and services in every country.