In order to meet the needs of its people, every society must answer three basic economic questions: What should we produce? How should we produce it? For whom should we produce it?
What are the so called five fundamental questions that every economy must answer?
Economic systems are ways that countries answer the 5 fundamental questions:
- What will be produced?
- How will goods and services be produced?
- Who will get the output?
- How will the system accommodate change?
- How will the system promote progress?
What is one of the four weaknesses of a command economy?
Command economy advantages include low levels of inequality and unemployment, and the common objective of replacing profit as the primary incentive of production. Command economy disadvantages include lack of competition and lack of efficiency.
What are the 4 fundamental questions of economics?
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?
How does the government affect the distribution of wealth?
Government role in influencing the distribution of income and wealth. The government’s role in the distribution of income and wealth is through redistribution of wealth and income. This is taking the wealth and income from some members of a society and transferring it to other members of that society.
How is the distribution of wealth and income determined?
In order to classify patterns of national wealth and income, a basis of classification must be determined.
How are prices determined in a market economy?
A market economy is a system in which the economic decisions and the prices of goods and services are determined by supply and demand. The assumption behind a market economy is that supply and demand are the best determinants for an economy’s growth and health.
Why does the government put money into the economy?
Governments will do this by putting more money into the economy than usual and by lowering the interest rate. This is done in the hopes of spurring economic development and by making business lending easier. Monetary policy also makes goods cheaper, if the government controls the prices.
