10 each society determines who will consume what is produced based on Ideas

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Economic Systems | Macroeconomics

A photo of visitors at Legoland in Billund, Denmark. The Lego city scene in the photo is a Norwegian fishing village.

Legoland, Billund, Denmark: Picture of a Planned Economy?

Types of Economies

In the modern world today, there is a range of economic systems, from market economies to planned (or command) economies.

Market Economies

market is any situation that brings together buyers and sellers of goods or services. Buyers and sellers can be either individuals or businesses. In a market economy, economic decision-making happens through markets. Market economies are based on private enterprise: the means of production (resources and businesses) are owned and operated by private individuals or groups of private individuals. Businesses supply goods and services based on demand. Which goods and services are supplied depends on what is demanded by consumers or other businesses. A person’s income is based on his or her ability to convert resources (especially labor) into something that society values. The more society values the person’s output, the higher the income they will earn (think Lady Gaga or LeBron James).

Examples of free-market economies include Hong Kong, Singapore, Australia, and the United States.

Free Markets 

In a market economy, decisions about what products are available and at what prices are determined through the interaction of supply and demand. A competitive market is one in which there is a large number of buyers and sellers, so that no one can control the market price. A free market is one in which the government does not intervene in any way. A free and competitive market economy is the ideal type of market economy, because what is supplied is exactly what consumers demand.

Price controls are an example of a market that is not free. When government intervenes, the market outcomes will be different from those that would occur in a free and competitive market model. When markets are less than perfectly competitive (e.g., monopolistic), the market outcomes will also differ.

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Planned (or Command) Economies

The Sphinx and the Great Pyramid of Khufu at Cairo, Egypt

Command economies operate very differently. In a command economy, economic effort is devoted to goals passed down from a ruler or ruling class. Ancient Egypt was a good example: A large part of economic life was devoted to building pyramids (like the one at the left), for the pharaohs. Medieval manor life is another example: The lord provided the land for growing crops and protection in the event of war. In return, vassals provided labor and soldiers to do the lord’s bidding. In the last century, communism emphasized command economies.

In a command economy, resources and businesses are owned by the government. The government decides what goods and services will be produced and what prices will be charged for them. The government decides what methods of production will be used and how much workers will be paid. Some necessities like health care and education are provided for free, as long as the state determines that you need them. Currently, North Korea and Cuba have command economies.

The primary distinction between a free and command economy is the degree to which the government determines what can be produced and what prices will be charged. In a free market, these determinations are made by the collective decisions of the market itself (which is comprised of producers and consumers). Producers and consumers make rational decisions about what will satisfy their self-interest and maximize profits, and the market responds accordingly. In a planned economy, the government makes most decisions about what will be produced and what the prices will be, and the market must follow that plan.

Most economies in the real world are mixed; they combine elements of command and market systems. The U.S. economy is positioned toward the market-oriented end of the spectrum. Many countries in Europe and Latin America, while primarily market-oriented, have a greater degree of government involvement in economic decisions than in the U.S. economy. China and Russia, while they are closer now to having a market-oriented system than several decades ago, remain closer to the command-economy end of the spectrum.

The following Crash Course video provides additional information about the broad economic choices that countries make when they decide between planned and market economies. The narrators talk fast, so you’ll need to listen closely and possibly watch the video a second time!

Economic systems determine the following:

  • What to produce?
  • Who to produce it?
  • Who gets it?

In a planned economy, government controls the factors of production:

  • In a true communist economy, there is no private property—everyone owns the factors of production. This type of planned economy is called a command economy
  • In a socialist economy, there is some private property and some private control of industry.

In a free-market (capitalist) economy, individuals own the factors of production:

  • Businesses produce products.
  • Consumers choose the products they prefer causing the companies that product them to make more profit.

Even in free markets, governments will

  • Maintain the rule of law
  • Create public goods and services such as roads and education
  • Step in when the market gets things wrong (e.g., setting minimum wage, establishing environmental standards)

In reality, economies are neither completely free-market nor completely planned. Neither exists in “pure” form, since all societies and governments regulate their economies to varying degrees. Throughout this course we will consider a number of ways in which the U.S. government influences and controls the economy.

Self Check: Economic Systems

Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.

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You’ll have more success on the Self Check if you’ve completed the Reading in this section.

Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.

Extra Information About each society determines who will consume what is produced based on That You May Find Interested

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Reading: Economic Systems | Macroeconomics

Reading: Economic Systems | Macroeconomics

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  • Matching Result: The primary distinction between a free and command economy is the degree to which the government determines what can be produced and what prices will be …

  • Intro: Reading: Economic Systems | Macroeconomics Legoland, Billund, Denmark: Picture of a Planned Economy? Types of Economies In the modern world today, there is a range of economic systems, from market economies to planned (or command) economies. Market Economies A market is any situation that brings together buyers and sellers of goods or services. Buyers and…
  • Source: https://courses.lumenlearning.com/suny-macroeconomics/chapter/reading-economic-systems/

Economic Systems

Economic Systems

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  • Sumary: Economic Systems: Command, Market, and Mixed

  • Matching Result: In a command economy, what goods and services are produced, how they are produced, and for whom they are produced are all questions answered by government …

  • Intro: Economic Systems Economic Systems: Command, Market, and Mixed The way in which a society answers the three fundamental economic questions is called an economic system. More formally, an economics system is a process or mechanism for answering the three fundamental questions. We can classify any type of economic system by…
  • Source: http://pholleran.asp.radford.edu/505_fall06_notes_week01_systems2.html

Frequently Asked Questions About each society determines who will consume what is produced based on

If you have questions that need to be answered about the topic each society determines who will consume what is produced based on, then this section may help you solve it.

What criteria do societies use to decide what to produce?

In a centrally planned economy, all decisions regarding the production and consumption of goods and services are made by the central government, while traditional economies depend on “habit, custom, or ritual” to determine what to produce, how to produce it, and to whom to distribute it.

How does society decide who gets to buy things?

Answer and explanation: In a free market, prices reflect the relative availability of scarce resources, and consumers who have the most money and desire for a product will pay the highest prices. Consumer preference and resources determine who will receive the goods and services produced in a market system.

What gets produced in our economy is decided by who?

In a free-market economy, decisions about what to produce, how much to produce, how much to charge customers for those goods, and how much to pay employees are made by the producer, and these choices are influenced by forces like competition, supply, and demand.

What factors determine which goods will be produced and at what price range?

The equilibrium market price of a good is the price at which quantity supplied equals quantity demanded. The law of supply and demand governs how much a product costs. Consumers want to purchase a product, and producers make a supply to satisfy this demand.

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How does the government choose which products to make?

A country with a command economy focuses on macroeconomic objectives and political considerations to determine what goods and services the country will produce and how much it will produce. The government sets prices for and produces goods and services that it believes benefits the people.

What are the four production factors?

Land, labor, capital, and entrepreneurship are the four factors of production that economists identify as constituting an economy.

What policies does a society have in place for the creation, distribution, and consumption of goods and services?

Economic systems, which can be classified as traditional, market, command, or mixed economies, are the ways in which a society decides and organizes the production, distribution, and consumption of goods and services.

What are some factors that our society uses to decide who gets what?

The most popular criteria are equality, equity, and need. [3] If equality is taken into account as the deciding factor, then goods will be distributed equally among all individuals (i.e., each person will receive the same amount.)

How does the economic system decide what is produced and consumed?

Consumption is the culmination of all productive activity because producers produce goods to meet consumer demands; in addition, consumption, along with investment, determines the level of income and employment in the economy.

How does the government regulate the flow of goods and services?

A nation’s central government must own and control the means of production in a command economy, also referred to as a planned economy, where private ownership of land and capital is either nonexistent or severely constrained.

What influences the cost of production inputs?

Answer and explanation: The forces of supply and demand on the factor market, such as the forces of labor supply and demand on the labor market, determine the price of a factor, such as the equilibrium age rate.

Who sets the price of a product?

This competition of sellers against sellers and buyers against buyers determines the price of the product in a competitive market. This competition of sellers against suppliers to sell their goods and bids from buyers against other buyers to obtain those goods is known as supply and demand.

What three things are taken into account when determining prices?

Determinants of Price in Marketing The primary factors that influence price are: Product Cost, Utility and Demand, and the degree of Market Competition.

What are the four factors that influence price?

In addition to gathering information on the size of markets, companies must try to ascertain how price sensitive customers are. These three factors are whether or not buyers perceive the product offers value, how many buyers there are, and how sensitive they are to changes in price.

What are the five demand determinants?

Demand Equation or Function Price, buyer income, the price of related goods, consumer preferences, and any consumer expectations of future supply and price are all factors that affect the quantity demanded (qD).

What are the four factors that determine strategy?

The four factors that determine a company’s ability to compete effectively, according to Michael Porter, are the firm’s strategy, structure, and rivalry; related and supporting industries; demand conditions; and factor conditions.

What are the two main elements that affect prices?

Supply and demand are in balance in Image 1 because both buyers and sellers are willing to exchange the quantity Q for the price P. Price determination is based equally on supply and demand at this point.

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