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Topic 1.2 Resource Allocation

Economics addresses three fundamental questions: what goods and services to produce, how to produce them, and who receives them. Centrally planned economies are characterized by government control over economic decisions and resource distribution, while market economies emphasize private property, individual freedom, and minimal government intervention. The document outlines the differences between these economic systems and explains the basic markets involved.

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37 views2 pages

Topic 1.2 Resource Allocation

Economics addresses three fundamental questions: what goods and services to produce, how to produce them, and who receives them. Centrally planned economies are characterized by government control over economic decisions and resource distribution, while market economies emphasize private property, individual freedom, and minimal government intervention. The document outlines the differences between these economic systems and explains the basic markets involved.

Uploaded by

madetaufan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd

what are the three economic questions

Economics is the study of the production, distribution, and consumption of goods


and services. Economists address these three questions: (1) What goods and
services should be produced to meet consumer needs? (2) How should they be
produced, and who should produce them? (3) Who should receive goods and
services?
Economic systems answer three basic questions: what will be produced, how will
it be produced, and how will the output society produces be distributed?

Although the focus of this chapter is on the market system, the four
fundamental questions must be answered by all economic systems.
 What goods and services will to be produced?
 How will these goods and services be produced?
 Who will get the goods and services?
 How will the system accommodate change?

Identify two characteristics of a centrally planned economy


Centrally Planned Economy Defined
 The government makes the economic decisions. ...
 The government controls all aspects of the economic production. ...
 The government decides how resources are distributed and used. ...
 The government needs to make the decisions. ...
 The government can determine the price of goods and services.

What Is a Centrally Planned Economy?

A centrally planned economy, also known as a command economy, is an economic system


where a government body makes economic decisions regarding the production and
distribution of goods. Centrally planned economies are different from market economies,
where these decisions are the result of thousands of choices by producers and consumers.
The production of goods and services in planned economies is often done by state-owned
enterprises, although independent companies may sometimes be incorporated into economic
planning. Prices, wages, and production schedules are typically set by a
centralized bureaucracy.

Identify two characteristics of a market economy

Private property, freedom, self-interest, competition, minimum government intervention are the
characteristics of a market economy.

A market economy works as a modern economic system characterized by currency, individual


property rights, and voluntary exchange. The system has limited government involvement because
private entities own the means of production. The distribution of goods and services is subject to the
forces of demand and supply.

In the view of economists, there are only two markets: the factor market (or input market) and the
goods and services, or output, market. The three main factor markets are the labor market, the capital
market, and the land market, which refers to all natural resources.

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