Answer to Question #156313 in Macroeconomics for Herbet

Question #156313

What are the three main questions an economic system has to address,


Expert's answer

There are three main questions an economic system has to address: what will be produced, how will it be produced and how will the output society produces be distributed? There are two extremes how to answer on these questions depending on type of economy. In command economies the government decides how allocate the resources and production and how to consume it. In market economies there is private ownership of resources, thus, the factors of production and consumption coordinates through the markets. In a market system, the allocation of the resources are more productive because the prices determined in markets.These prices act as a signal for buyers and sellers. Most economies are mixed and combines an advanteges and disadvantages of each extremes.

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