The Three Economic Questions

How do property rights influence the exchange of goods and services in the market?

Property rights determine ownership of resources among businesses, individuals, and governments

Why are property rights important in an economy?

property rights determine the ownership and allocation of resources, and provide the foundation for how goods are exchanged in an economy

profit

the financial gain or benefit from exchanges or investments within an economy

market economy

the market economic structure promotes competition between businesses by allowing supply-and-demand forces to dictate prices. As a result, price levels are low, and businesses must operate with a high level of efficiency to be competitive. Profit-seeking behavior and consumer sovereignty determine the allocation of scarce resources. (free market or capitalist)

Top five freest economies in the world

1. Hong Kong 2. Singapore 3. New Zealand 4. Switzerland 5. Australia

three basic questions

1. What goods and services should be produced? 2. How will the goods and services be produced? 3. Who will consume the goods and services?

Based on the 2019 Index of Economic Freedom, where economies are listed from freest to least free, what economic structure would represent countries at the top of the list? What economic structure would represent countries at the bottom of the list? Is there an economic structure that might represent countries in the middle?

Countries at the top of the Index of Economic Freedom would represent market economies. Countries at the bottom would represent command economies. Countries in the middle would represent mixed economies because they are likely a blend of market and command economies.

Which economic structures exhibit the following characteristics?

Government regulation • command economy • mixed economy Promotes competition between producers in the market • market economy • mixed economy No private property rights • command economy Output of producers is controlled by the wants and needs of consumers • market economy • mixed economy Businesses exhibit profit-seeking behavior • market economy • mixed economy

What is the basic economic problem that societies must solve?

How to allocate resources in order to best satisfy the needs and wants of people.

Which economic structures promote competition in production? How do they accomplish this?

Market economies and mixed economies both promote competition in production by having private property rights and allowing consumer sovereignty to dictate production and prices. Therefore, producers are forced to innovate and operate with a high level of efficiency in order to remain successful and competitive in the market.

How do market economies and command economies differ in how they address property rights and allocation of resources?

Market economies have private property rights where both producers and consumers have ownership of resources and the capability to determine how those resources are used. Command economies use government regulations, laws, and directives to determine ownership of resources, how scarce resources are allocated, and what goods and services are produced and consumed

command economy

The government creates a central economic plan that determines the allocation of scarce resources, labor, and capital, which is enforced through laws, regulations, and directives. There is no consumer sovereignty, private property rights, competition, and response to supply-demand forces because production is determined by the government. Examples: North Korea, Cuba, Venezuela, and the former Soviet Union

In a given economy, there are private property rights and businesses are able to seek profits and must be responsive to market forces. The government in the economy recently had to step in and regulate a certain market that was experiencing unfair competition due to a select few businesses having too much control in the given market, which was leading to higher prices for goods and services. The government provided subsidies and support to the less competitive businesses in the given market in order to promote fair competition and bring prices back to levels determined by the wants and needs of consumers. What type of economy does this demonstrate?

This is an example of a mixed economy. The economy has private property rights and businesses must respond to market forces, which implies the economy has elements of a market economy. Also, the government can use laws and regulation to provide aid to less competitive firms which implies the economy has elements of a command economy. Therefore, the economy blends the structures of a market economy and a command economy.

consumer sovereignty

a situation in an economy where the output of producers is controlled by the wants and needs of consumers

mixed economy

an economy that blends the structure of a market economy and a command economy in order to allocate scarce resources and determine goods and services produced within the economy

market economy

an economy where price signals resulting from supply and demand forces within the economy determine the goods and services that the economy produces

command economy

an economy where the allocation of scarce resources, and the goods and services that the economy produces are determined by a government

traditional economy

an economy where traditions, culture, and beliefs determine the allocation of resources and the goods and services that the economy produces

property rights

determine ownership of resources among businesses, individuals, and governments, and provide the foundation for how goods and services are exchanged in the market

A traditional economy is an economy where...

economic decisions are based on traditions, culture, and beliefs.

In which economic system are price signals, resulting from supply and demand forces, the only determining factor for the goods and services that the economy produces?

market economy

Which economy has the highest level of consumer sovereignty?

market economy