She is having a little trouble with the computer so

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Unformatted text preview: k she bought a computer online from a U.S. company. She is having a little trouble with the computer so she calls the customer service number. In a matter of minutes, a voice on the other end of the line asks for her service tag number. She gives it to the person. The person she is speaking with is in India. • Why is the person in India? 31 02 (030-053) EMC Chap 02 11/17/05 4:13 PM Page 32 Focus Questions Economic Systems What are three economic questions every society must answer? What are the major differences between free enterprise and som? What is an economic system? What did Adam Smith say about self-interest? What is the labor theory of value? Key Terms economic system free enterprise som economic plan income distribution Three Economic Questions All nations in the world share something fundamental: All must decide how to answer three economic questions about the production and distribution of goods. • economic system The way in which a society decides what goods to produce, how to produce them, and for whom goods will be produced. free enterprise An economic system in which individuals (not government) own most, if not all, the resources and control their use. Government plays only a small part in the economy. som An economic system in which government controls and may own many of the resources. 32 • What goods will be produced? The first economic question every society has to answer concerns what goods to produce. Because of scarcity, no country can produce every good it wants in the quantity it would like. More of one good (say, television sets) leaves fewer resources to produce other goods (such as cars). No matter what nation we are talking about—the United States, China, Japan, India, Russia, Cuba, or Brazil—each must decide what goods will be produced. How will the goods be produced? The next question every society has to answer deals with the ways in which people produce the goods. Will farmers using modern tractors produce food, or will farmers using primitive tools produce it? Will the food be produced on Chapter 2 Economic Systems and the Global Economy • mixed economy traditional economy vision labor theory of value surplus value private farms, where production decisions are made by individual farmers, or will it be produced on collective farms, where production decisions are made by people in the government? For whom will the goods be produced? This third question relates to who gets the goods. Will anyone who is able and willing to pay the prices for the goods be able to obtain them, or will government decide who will have the goods? Two Major Economic Systems How a society answers these three economic questions defines its economic system. The two major economic systems are free enterprise and som. Free enterprise is an economic system in which individuals own most, if not all, the resources and control their use. In som, government controls and may own many of the resources. Sometimes free e...
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