Economics

Lesson 1 Project

Economic Questions and Vision

The two major economic systems in the world are the capitalist (free market)

economic system and the socialist economic system. The many different

countries of the world usually have an economic system in place that contains

elements of both capitalism and socialism. Since the philosophies of capitalism

and socialism are opposite, an individual country and its economic system will

answer key economic questions differently. Regardless of how much that country

or society supports either philosophy, the key questions their economic system

must answer are the same. One question that must be answered is, what

goods will be produced? Another question is how will these goods be

produced? Also there is the question to be answered, for whom will these

goods be produced? The location of the economies operation on the

production possibilities frontier (PPF) is also very important to production. The

PPF is related to what goods are produced which depends on whether the

economic system is based on capitalism or whether it is based on socialism.

What goods will be produced in a capitalist economic system

Is determined by what the market wants. As an example if the buyers and sellers

want more computers, televisions, automobiles. houses, and entertainment or

food to be produced, then the production of these products will take place.

(pages 56, 57, 58, and 59 of Economics 6th edition by Roger A. Arnold)

In the capitalist economic system the sellers usually respond to the buyers

changes in wants or preferences also. Goods and services are produced when

enough buyers exist that desire to buy those goods and services. If buyers start

wanting more of a certain product than another, production usually shifts to meet

the need. Capitalism is based on the concept of free enterprise and the principle

of individual rights. This means freedom from private and government coercion.

Production and trade help to increase the wealth that people need to support

their life. In the capitalism system the person who creates the wealth is the

owner of that wealth. (http://www.capitalism.org)

What goods will be produced in a socialist economic system

Is decided by the government in control. The government may or may not be

responsive to the wants of the ordinary citizen. Some economist believe that one

of the reasons for the fall of communism in the Soviet Union as well as in Eastern

Europe was a decline in economic growth. An example is given in our text where

the former Soviet union had tension between the people and the government.

The PPF framework shows the government leaders wanting to be at one point

while the majority of the people in the Soviet Union wanted to be at another point.

The text states that "the majority of the people wanted more consumer goods

than the government wanted to produce". (page50) The Soviet government was