The 3 Economic Questions
A country decides whether to produce more smartphones or more textbooks.
What will be produced?
Standing in line is an example of this distribution method.
First-come, first-served?
This economic system is also known as capitalism.
Market economy
When one firm controls an entire industry.
A monopoly
A student studies harder because extra credit is offered.
Incentives
A factory chooses between using robots or human labor to make cars.
How will it be produced?
Giving everyone the same amount regardless of need.
Equal distribution
This system is centralized and government-owned.
Command economy
A negative side effect like pollution.
A negative externality
You decide to work a shift instead of going to a party because you can’t do both.
Trade-offs
A government decides whether low-income families or high-income families get housing assistance.
Who gets the goods and services?
Distributing goods based on poverty or urgency.
Need
The only remaining pure command economy in the world.
North Korea
A positive spillover like vaccines.
A positive externality
You spend $20 on a concert ticket instead of saving it or buying groceries.
Opportunity cost
A business chooses whether to use cheap overseas labor or higher-paid domestic workers.
How will it be produced?
Distributing goods based on age, height, or other visible traits.
Observable characteristics
An economy that mixes capitalism and socialism.
Mixed economy
Goods not provided privately due to the free-rider problem.
Public goods
You decide whether to add one more 3-unit class by comparing the extra stress to the benefit of graduating sooner.
Marginal thinking
A city must decide whether new vaccines go first to the elderly, children, or healthcare workers.
Who gets the goods and services?
The main method used in market economies to distribute goods.
Productivity
The U.S. is an example of this type of economy.
A mixed economy with more capitalism than socialism
Fireworks shows, national defense, and public safety are examples of this.
Public goods
A person chooses a job that pays more even though it requires longer hours because the benefits outweigh the costs.
Rational behavior