Overview: Who should decide what to do with the resources in a country? The people? The government? Both? These questions form the basis for understanding economic systems. Show
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All economies must answer basic questions like what goods and services to produce, how to produce these goods and services, and how to distribute the goods and services – using their scarce resources. The answers to these questions depend on the economic system that is in place. In a pure market economy, the basic economic questions are answered by private individuals and businesses freely interacting over time. Private property is protected, and competition and negotiation are encouraged. In a pure command economy, the basic economic questions are answered by the government, which owns the productive resources and handles distribution of goods and services. These two descriptions represent extreme ends of a spectrum. In reality, most modern economies are mixed economies -- combinations of market and command with some cultural traditions sprinkled in as well. Nations can slide along this spectrum as different leaders are elected or different social and economic goals become important. These goals are described in Concept 10 - Economic and Social Goals. Intermediate
The United States is often considered a market-based economy. While it is true that it is closer to the market side of the spectrum, the United States has significant amounts of government involvement in the economy. Taxes --which redistribute income -- are collected at local, state, and federal levels. The government provides billions of dollars of public goods and services like education, military protection and national parks, which are not allocated by market prices. On the other end of the spectrum, countries like Cuba and Venezuela are generally seen as command-based. Even in these countries, however, there are usually at least some businesses (restaurants, hotels, tour guides) that are privately owned. The level of economic freedom in a country can vary tremendously nationwide and within certain industries. AdvancedTo conduct a deep analysis of a nation’s economic system, there are at least five basic variables that must be considered:
Click a reading level below or scroll down to practice this concept.PracticeAssessBelow are five questions about this concept. Choose the one best answer for each question and be sure to read the feedback given. Click “next question” to move on when ready. Social StudiesCompare and contrast different economic systems and explain how they answer the three basic economic questions of what to produce, how to produce, and for whom to produce. Compare traditional, command, market, and mixed economic systems with regard to private ownership, profit motive, consumer sovereignty, competition, and government regulation. Support MaterialsToolkitEcon Express ConceptsFundamentalsAll academic subjects have a foundation. This domain features the key concepts upon which Economics is built. You may also enjoy ...
Concept 3: Productive ResourcesOverview: All goods and services require resources. In this concept you will learn what these resources are and get practice identifying them.
Connect with GPB EducationWhich economic system gives producers and consumers the most power to make economic decisions?One of the most important characteristics of a market economy, also called a free enterprise economy, is the role of a limited government. Most economic decisions are made by buyers and sellers, not the government. A competitive market economy promotes the efficient use of its resources.
Who makes most of the economic decision?In a planned economy, the government makes most decisions about what will be produced and what the prices will be, and the market must follow that plan. Most economies in the real world are mixed; they combine elements of command and market systems.
Which economic system gives the government the most power in economic decisions?Communism, also known as a command system, is an economic system where the government owns most of the factors of production and decides the allocation of resources and what products and services will be provided. The most important originators of communist doctrine were Karl Marx and Frederick Engels.
Which economic system is best for consumers?A free and competitive market economy is the ideal type of market economy, because what is supplied is exactly what consumers demand.
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