Three Questions every economic system has to answer
How will the goods be produced?
For Whom will the goods be produced?
Individual's own and control resources
Gov’t owns and controls resources
Resources: Used to produce goods and services
Government owns
Gov’t’s role:
Free Enterprise: Small role
Socialism: Big role
Economic plan: Plan that specifies the direction economic activities will take.
Income distribution: the way all the income earned in a country is divided among different groups of income earners.
Free enterprise: Private property is sacred.
Socialist believe gov’t should own property.
Elements of both socialism and free enterprise
Answers to the economic questions are based on customs, traditions and cultural beliefs.
How does the world work?
Adam Smith
Karl Marx
How do we benefit others through our own self interest?
Labor Theory of Value: All value in produced goods comes from labor.
Surplus Value: Difference between total value of production and what worker is paid