Basic Economic Concepts

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Three basic economic questions

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What and how much to produce? How to produce? For whom to produce?

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Definition of 'economic system'

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An economic system is a collection of institutions involved in directing and organizing the production and distribution of goods, services, and incomes in an economy.

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Four main types of economic systems

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Traditional economies, Market economies, Planned economies, Mixed economies.

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Definition of a traditional economy

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A traditional economy is an economic system that exists in remote pockets of other economies, guided by long-established customs.

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How a traditional economy answers the 'What and how much to produce?' question

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The type of goods and services produced is dictated by what has always been produced, focusing on essential goods for survival.

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Production methods in traditional economies

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Production methods are very basic and labor-intensive, with low productivity and efficiency.

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Distribution of goods in a traditional economy

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Goods are distributed among the family or tribe according to a well-established formula, often reflecting status or seniority.

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Challenges in traditional economies

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Low productive efficiency leads to subsistence levels of output and consumption, with harsh conditions and short life expectancy.

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Traditional economy diagram

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Diagram illustrating key aspects of a traditional economy, such as focus on family or tribe, barter trade, and production of essential goods.

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Definition of a pure market economy

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A pure market economy is an economic system where the three basic economic questions are answered by the operation of markets without government interference. Key elements include self-interest, competition, and private ownership of resources.