Production possibilities define the output choices confronting a nation:◦ WHAT to produce◦ HOW to produce◦ FOR WHOM to produce

How an economy answers these questions is reliant on the system it uses.

◦In a centrally-planned economy, the government chooses the answers.

◦In a market economy, individuals through a self-correcting market system do.

Centrally planned systems purportedly tend to be more equitable. Whereas, market systems tend to be more efficient.

◦Centrally planned economies tend to have a more equal sliced economic pie.

◦Market systems usually tend to have larger pies, but not equally sliced.

A mixed economy is one that uses both market signals and government directives to allocate goods and resources.

Most economies use a combination of market signals and government directives to select economic outcomes.

The U.S. relies mainly on a market system, whereas most European countries have more government control.