Econ: Chapter 3 Review


Because resources are always scarce compared to people’s wants, all societies must make choices about what to have and what to give up. How those choices get made depends on a society’s economic system.

Every society is faced with three economic questions: What goods and services should be produced? How should they be produced? Who should get what is produced? How a society answers those questions depends on its economic goals. These goals include economic freedom, efficiency, equity, growth, security, and stability.

Over time, societies have developed three economic systems to answer these questions. In a traditional economy, decisions are dictated by custom and ways of ancestors. In a command economy, a powerful ruler or government makes decisions. In a market economy, decisions are made by the interactions of individual producers and consumers. Each system emphasizes different economic goals.

Most countries today have a mixed economy, in which both the government and individuals have a voice in economic decisions. Who decides what varies greatly. Some countries, including the United States, minimize government regulation on the market. Others, such as China, still exercise considerable government control over economic activities.

Americans describe their economy as a free enterprise system. This system has seven key characteristics.

  • Economic freedom to buy and sell what we want and work where we want.
  • Competition among firms, which try to attract customers with new and better products.
  • Equal opportunity to make the best use of our talents, abilities, and education.
  • Property rights that allows us to buy, own, and sell goods and intellectual property.
  • Binding contracts, which give us confidence that others will abide by their agreements.
  • The profit motive, which provides an incentive to work and start new businesses.
  • Limited government that regulates without controlling individuals, firms, or the market.

1) Chapter 3 Quiz I – tomorrow



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