The Economy
How do economies work?
Goal:
Goal:
An economic system describes how a country's economy is organized. All economic systems try to answer the same three basic questions:
What to produce?
(What goods and services should be produced?)
How to produce?
(How will goods and services be produced?)
Who to produce for?
(Who will consume the goods and services?)
A lot economic decisions are based on free enterprise, or competition between companies. The government cannot tell a business what goods to produce and what prices to charge. Instead, decisions are guided by the changes in prices that occur as buyers and sellers interact in the market place.
Let's see how the three questions can be answered.
What to produce?
Businesses base decisions on supply and demand and free enterprise.
How to produce?
Businesses decide how to produce goods.
Who to produce for?
Consumers buy the products.