Economics / Unit 2: Economic Systems
2.1 The Three Economic Questions and Economic Goals
Notes
Because of scarcity, every society must answer three basic economic questions. An economic system is the way a society answers them.
- What goods and services should be produced?
- How should they be produced (which resources and methods)?
- For whom should they be produced (who gets them)?
- Societies also pursue economic goals, and different systems weigh them differently:
| Goal | Meaning |
|---|---|
| Economic efficiency | making the most of scarce resources |
| Economic freedom | people choose their own jobs, purchases and businesses |
| Economic equity | fairness in how income and wealth are shared |
| Economic security | protection from risks such as illness, job loss and old age |
| Economic growth | producing more goods and services over time |
| Price stability | avoiding rapid inflation |
| Full employment | jobs for people who want to work |
- Goals can conflict. For example, more security through programs funded by taxes may mean less freedom to spend one's own income. Reasonable people weigh these trade-offs differently.
Practice
A city must decide whether a new park will be built with paid workers or with volunteers and machines. Which economic question is it answering?
Choosing methods and resources answers the "how" question.
A law that guarantees workers payments if they lose their jobs mainly promotes which economic goal?
Unemployment payments protect people from the risk of job loss.
Which pair of goals is most likely to conflict?
Taxes that pay for security programs leave people less of their own income to spend freely.
Ready for more? Take the Unit 2 test.