CHAPTER 2
Three economic questions:
1. What goods and services will be produced and in what quantities? These are output questions
2. How will each of the goods and services be produced and how much of the scarce resources will be used in
the production of each good? These are input questions
3. For whom will the various goods and services be produced? Who will receive the goods and services and
how much will they receive? Where will the production occur? These are distribution questions
Traditional economic system:
1. Rigid system which is slow to adapt to changing conditions and stubbornly resists innovation
2. Usually subsistence economies – not seen as a drawback by participants
3. Economic activity is usually second to religious and cultural values and the desire to perpetuate the status
quo
4. Tend to be limited to isolated and largely self-sufficient communities
Command system:
1. Participants are instructed what to produce and how to produce it by a central authority which also
determines how the output is distributed.
2. AKA centrally planned system – refers to the way in which economic activity is coordinated
3. NOT socialist or communist system – refers to the ownership of factors of production
Market: any contact or communication between potential buyers and potential sellers of a good or service
Market conditions:
1. There must be at least one potential buyer and one potential seller of the good or service
2. The seller must have something to sell
3. The buyer must have the means with which to purchase it
4. An exchange ratio – the market price – must be determined
5. The agreement must be guaranteed by law or by tradition
Market system:
1. Individualism
2. Private freedom
3. Private property
4. Property rights
5. Decentralised decision making
6. Limited government intervention
7. Competition exists
8. Tendency to inequality and instability
Mixed economy:
1. No economy is based purely on tradition, command or market
2. All economic systems are a mixture of traditional behaviour, central control and market determination; one
of these three mechanisms usually dominate
3. Perfect mix always to be debated
4. Mix depends on the perceived problems of the society concerned and is thus likely to change over time.
South Africa’s mixed economy:
1. Private property, private initiative, self-interest and the market mechanism play an important role
2. Substantial degree of government intervention
3. Some enterprises, or significant shared of them are owned directly or indirectly by the state
Privatisation: selling state-owned enterprises to the private sector
Three economic questions:
1. What goods and services will be produced and in what quantities? These are output questions
2. How will each of the goods and services be produced and how much of the scarce resources will be used in
the production of each good? These are input questions
3. For whom will the various goods and services be produced? Who will receive the goods and services and
how much will they receive? Where will the production occur? These are distribution questions
Traditional economic system:
1. Rigid system which is slow to adapt to changing conditions and stubbornly resists innovation
2. Usually subsistence economies – not seen as a drawback by participants
3. Economic activity is usually second to religious and cultural values and the desire to perpetuate the status
quo
4. Tend to be limited to isolated and largely self-sufficient communities
Command system:
1. Participants are instructed what to produce and how to produce it by a central authority which also
determines how the output is distributed.
2. AKA centrally planned system – refers to the way in which economic activity is coordinated
3. NOT socialist or communist system – refers to the ownership of factors of production
Market: any contact or communication between potential buyers and potential sellers of a good or service
Market conditions:
1. There must be at least one potential buyer and one potential seller of the good or service
2. The seller must have something to sell
3. The buyer must have the means with which to purchase it
4. An exchange ratio – the market price – must be determined
5. The agreement must be guaranteed by law or by tradition
Market system:
1. Individualism
2. Private freedom
3. Private property
4. Property rights
5. Decentralised decision making
6. Limited government intervention
7. Competition exists
8. Tendency to inequality and instability
Mixed economy:
1. No economy is based purely on tradition, command or market
2. All economic systems are a mixture of traditional behaviour, central control and market determination; one
of these three mechanisms usually dominate
3. Perfect mix always to be debated
4. Mix depends on the perceived problems of the society concerned and is thus likely to change over time.
South Africa’s mixed economy:
1. Private property, private initiative, self-interest and the market mechanism play an important role
2. Substantial degree of government intervention
3. Some enterprises, or significant shared of them are owned directly or indirectly by the state
Privatisation: selling state-owned enterprises to the private sector
