Because of scarcity, every nation is faced with “The 3 K eye Economic Questions: Who – consumes the goods & services produced in society? “For whom? ‘ is a public choice question. All economic systems must determine e which goods and services will be available for public use and which for private use. What -?goods & services should be produced? “What to produce? ‘ is an allocation question.
All economic systems must date ermine how to allocate productive resources in the form of land (natural resources/ raw materials), labor (work for which we earn pay) and capital (human education & job training) (physical buildings, equipment & tools).
How – should goods & services be produced? “How to produce? ” is an efficiency question. All economic systems must deter mine how goods and services will be produced. How do different economic systems respond to the 3 Key Economic questions ? First of all, we need to define exactly what an “Economic System” is: The institutional framework of formal and informal rules that a society uses t o determine what to produce, how to produce and how to distribute goods and services. Another, more popular term for economic system is economy.
An economy, o r economic system, is he structural framework in which households, businesses, and governments undertake the production and consumption decisions that allocate limited resources to satisfy unlimited wants and needs. An economic system is primarily characterized by its key institutions, especial y those relating to the ownership and control Of resources and the means Of production. Two realtor economic systems that differ based on key institutions are capitalism and communism.
Capitalism is an economic system in which ownership and control is largely in private hands (b genuineness and households), as opposed to public hands (government). One of the key institute actions underlying capitalism is private property rights. Communism, in contrast, is an economic system in which ownership and control predominately rests with government. Socialism is a the rid noted economic system that borrows institutions from both capitalism and communism. Economic systems can be categorized according to who makes most Of the De concisions in an economy.
Most economies can generally categorized as one of two kinds: ; Market Economy An economy that relies on a system of interdependent market prices to local tee goods, services, and productive resources and to coordinate the diverse plans of con mummers and producers, all of them pursuing their own selflessness. ; Command Economy An economy in which most economic Issues of production and distribution AR e resolved through central planning and control. So, how do different economic systems respond to the three basic economic questions?
In a socialist or command system, the central authority determines what, how, an d for whom goods and services will be produced. A Mixed System incorporates elements of both corn and and market systems in determining answers to the three questions. Mixed economies wit h Strong market monuments also include a public goods and services sector, just as command economies like Cuba include a private goods and services sector. In a market economy, most of the decisions in the economy about what to pr educe, how to produce it and who receives it are made by individuals and firms.
At the other end of the spectrum: In a command economy, government officials make most of the decisions in t he economy about what to produce, how to produce it and who receives it. Most economic systems also contain elements of tradition or repeating decide ions in ways made at an earlier time or by an earlier generation. Today, nearly all economies are actually mixed, in that some economic decisions are made by individuals and private firms, but some e are also made by government officials, either through rules and regulations or through govern mentored firms. The U. S. Economy leans toward the marionettes side of the spectrum.
An economy like Cuba or North Korea is near the command economy side of the spectrum. Buy t the dividing line between market and command economies in most nations is blurry rather the an bright. Market Economies (“Capitalism Capitalism is undoubtedly at the top of any list of economic systems operating in the modern world. This system is based on: (1) private appropriative ownership of resource recess and the means of production, (2) individual illiberality freedom on the part of the resource o Wieners to use their resources as they see fit, and (3) competitive markets system of relatively co imitative markets. Ender capitalism, governments establish the basic rules of the game and are responsible for the production of public goods, but the vast majority of resource allocation De concisions are undertaken by individuals, as either consumers or producers. The United States is one of the more noted examples of capitalism. However, most modern industrialized economies of Europe, Asia, North America, and South America operate under capitalism.
Command Economies (“Socialism”) In theory, socialism is the transition between capitalism and communism and is based on: (1) government ownership of resources and the means of production, (2) worker control of government, and (3) income distributed according to needs. As practiced in the real world, socialism is an economic system based on (1) nationalized intergovernmental ownership and control 01 of key industries and (2) central polycrystalline detailed, but not comprehensive, resound:e local ion decision making by the central government. Ender real world socialism, governments exert extensive control over resource e allocation decisions, primarily involving key industries such as transportation, energy pr deduction, communication, and health care. While Sweden exemplifies modern socialism, several Europe an nations have practiced varying forms of socialism over the decades. Command Economies (“Communism”) In theory, communism is an economic system based on: (1) a classless society , (2) common ownership of resources, (3) no government, and (4) income distributed accord ins to needs.