Three Key Economic Questions:

Three Key Economic Questions:To form an economic system, a society must decide what to produce, how to produce it, and who will consume what is produced. Factor payments – the income people receive for supplying the factors of production – determine who consumes goods & services.

What goods & services should be produced?

How much of our resources should we devote to national defense, education, public health & welfare, or consumer goods?

How should goods& services be produces?

What combination of factor resources – land, labor, capital should we use?

Who will consumethese goods & services?

How will income be distributed? How will factor payments be determined?

Economic GoalsMost Societies share certain basic economic goals. Societies rank the

importance of these goals based on their needs & values.

• Economic efficiency• Economic Freedom• Economic security

and predictability• Economic equity• Economic growth &

innovation• Other goals

Making the most of resourcesFreedom from government intervention in the production and distribution of goods & servicesAssurance that goods and services will be available, payments will be made on time, and a safety net will protect individuals in times of economic disaster

Fair distribution of wealth

Innovation leads to economic growth, and economic growth leads to a higher standard of living.Societies pursue additional goals, such as environmental protection

How does the free enterprise system encourage private ownership of property and promote individual initiative???

Basic Principles of Free EnterpriseProfit Motive: the force that encourages people and organizations to improve their material well-being. Since F.E. allows for individuals & businesses to make economic decisions, people try to make the most for their money.Open Opportunity: the concept that everyone can compete in the market place. No one can be excluded!!!Economic Rights: everyone legal equality, may own private property, enter into contracts & voluntarily exchange their goods/services.

The Role of the Consumer: must make desires known to businesses by purchasing so businesses know what to produce. May join interest groups to further specific causes.

The Role of the Government: force businesses to disclose what is in their products in order to protect the health, safety, & welfare of the people. Ensure equal justice in contracts

Constitutional Protections: Gov’t may not take private property without just cause (Am. 5 & 14). Taxes should be simple, collected efficiently, certain in collection, and equal/fair to all.

2 of the main players in F.E.: Who is missing?