Unit Three Economic System.pptVIP

Unit Three Economic System New Words 1.Economic System An economic system is a mechanism (social institution) which deals with the production, distribution and consumption of goods and services in a particular society. The economic system is composed of people, institutions and their relationships to resources. As we have said, all nations must answer the question of scarcity. All nations and societies must allocate their resources in order to meet their needs. This is where the essential dilemma between unlimited wants and limited needs comes into play. We have also noted that all nations must make choices. This is a matter of resource allocation. When we allocate limited resources we make choices. The cost of these choices is known as opportunity cost. When making these choices and dealing with scarcity, resource allocation and opportunity cost , nations are answering what we have previously referred to as the three basic economic questions. These are the questions all nations must ask when dealing with scarcity and eficiently allocating their resources. They are: What to produce? How to produce? For whom to produce? Each nation and society thus must make choices and decision based upon there own values. If a society values meeting more wants and needs at the expense of freedom of choice then they may choose a system radically different Economic systems are divided up into three basic types. These types are: ? 2.Traditional Economic System A traditional economic system is one in which peoples economic roles are the same as those of their parents and grandparents. Societies that produce goods and services in traditional ways are found today in some parts of South America, Asia, and Africa. There, people living in an agricultural village still plant and harvest their own food on their own land. And the ways they produce clothing and shelter are almost exactly the same as those used in the past. Tradition decides what these people do for a living and how