Economics and Economic Systems

Definition of Economics

• Economics is the study of how a society organizes its resources.
• This organization is necessary due to human nature, which is inherently greedy, leading to unlimited wants.
• The planet has limited resources, creating scarcity.
• An economy is a system created to allocate these scarce resources.

Ideology and Economy

• The organization of an economy reflects the ideology of the society.

Basic Economic Questions

1. What to produce?
   • Essential goods (e.g., vegetables) vs. consumer goods (e.g., potato chips).
2. How to produce it?
   • Invest in technology vs. focus on human capital for full employment.
3. Who gets it?
   • Distribution by government or based on ability to pay.

Economic Systems

Market Economies

• Decisions on what to produce are based on consumer demand.
• Production methods are determined by suppliers.
• Distribution is based on the price system and wages.
• Also known as capitalism, free market, free enterprise, or private enterprise.
• Private individuals control the economy.
• Positioned on the right side of the economic spectrum.

Planned Economies

• Government answers all three basic economic questions.
• Resources are organized to encourage equality through a central agency.
• Also known as socialism, communism, or public enterprise.
• Government or public institutions control the economy.
• Positioned on the left side of the economic spectrum.

Mixed Economies

• Most economies are neither purely capitalist nor socialist.
• Mixed economies combine elements from both private and public enterprises.
• Positioned in the middle of the economic spectrum.
• Combines individual competition with government intervention to promote cooperation and equality.

Next Steps

• The next lesson will explore capitalism in more detail.
• Focus on capitalism's origins during the Enlightenment and the promotion of liberal ideologies.