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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
What is the labor theory of value? Key Terms
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.
The way in which a society decides what goods
to produce, how to produce them, and for
whom goods will be
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
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
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
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
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- Winter '14