5. Economic systems

14. What is the profit motive?

The profit motive encourages sellers to produce at the lowest possible cost.

15. What is a mixed economy?

The mixed economy is an economic system that answers the three economic questions both in the marketplace and in the government.

16. What features does a mixed economy combine?

A mixed economy contains both private and public, or state-owned (or controlled) enterprises and relies on the market but with a large dose of government intervention.

3. MICROECONOMICS VS. MACROECONOMICS

to be. It comprises ethical precepts and value judgments*( ціннісні судження) about whether economic policies are good or bad.

15.What is positive economics concerned with?

Positive economics looks at the facts and the economy as they actually are, avoiding value judgements* and attempting to seek scientific bases about economic activities. It is an approach that deals with “what is” rather than* with “what ought to be” and contains no indication of approval or disapproval.

16.What does normative economics deal with?

Normative economics, on the other hand, is concerned about what ought to be. It comprises ethical precepts and value judgments* ціннісні судження about whether economic policies are good or bad. Normative economics is used to take decisions as for issues of equity, equality, and fairness, since these concepts include judgments about what ought to be. Normative economics attempts to show that one activity is better than another activity. “The world would be a better place if the moon were made of green cheese” is a normative statement because it expresses a judgment about what ought to be. Notice that there is no way of disproving this statement.

5. Economic systems

1. What are the three basic economic questions that every society must answers?

Every human society - whether it is an advanced industrial nation, a centrally planned economy, or an isolated tribal society – must face and solve three fundamental and interdependent economic questions.

•What goods and services are to be produced, and in what quantities are they to be produced?

•How are these goods and services to be produced?

•Who will receive and consume these goods and services?

2. What does the What question refer to?

The first basic choice is that of what goods a society should produce and in what quantities.

3. What are the ways of providing answer to the How question?

Efficiency is a key criterion deciding how to produce. Efficiency means producing goods and services with a minimum of expense, effort, and waste. As the economy has to economize its limited resources it has to make a choice between various production methods to produce different goods.

4. What does the Who question mean?

No one can get all he wants. Whatever is produced in an economy it cannot be sufficient to meet everybody's wants. So a problem arises who will get and how much. This is the problem of distribution of wealth produced in an economy among different groups.

5. What is an economic system?

An economic system is a mechanism that deals with the production, distribution and consumption of goods and services in a particular society.

6. What categories do economic systems fall into?

The economic system consists of people, institutions and their relationships to resources. It addresses the problems* of economics, like the allocation and scarcity of resources.

7. What is a traditional economy?

The traditional economy is an economic system in which decisions about what, how, and for whom questions are made on the basis of customs, beliefs, religion, habit, and tradition.

8. What is a command economy?

The command economy is a society where the government institutions make all decisions concerning what will be produced, how it will be produced, and for whom it will be produced.

9. Who provide answers to the fundamental economic questions in a command economy? Why?

In a command economy, a central authority or agency draws up plans that establish what will be produced and when, sets production goals, and makes rules for distribution.

The government owns a considerable fraction of the means of production that is, they are publicly owned; it also owns and directs the operations of enterprises in most industries; it is the employer of most workers and tells them how to perform their work.