Chapter 1-4

What Economics Is About
4
Four Types of Resources
and Three Economic
Questions
resource
Anything that is used to
produce goods or
services.
In economics, resources
are also called “factors of
production.”
land
All the natural resources
found in nature.
Water
Minerals
Animals
Plants
Forests
labor
The physical and mental
talents that people
contribute to the
production of goods and
services.
capital
Produced goods that can
be used as resources for
further production. Such
things as factories,
machines and farm
equipment.
entrepreneurship
The special talent
that some people have for
searching out and taking
advantage of new business
opportunities and for
developing new products and
new ways of doing things.
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land
labor
rent
The payment to the
resource land
capital
The entrepreneur decides
how to put together land,
labor and capital to
produce goods and
services.
wages
The payment to the
resource labor.
interest
The payment to the
resource capital.
profit
The payment to
the resource
entrepreneurship.
The 3 Questions Every
Society Must Answer:
What goods will be
produced
How will the goods be
produced
For whom will the goods
be produced
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economic system
The way in which a
society decides what
goods to produce, how to
produce them, and for
whom goods will be
produced.
free enterprise
An economic system in which
individuals (not government) own
most, if not all, the resources and
control their use.
socialism
An economic
system in which
government
controls and may
own many of the
resources.
economic plan
A government program
specifying economic
activities, such as what
goods are to be produced
and what prices will be
charged.
Major Differences Between Free
Enterprise & Socialism
Resources
Government’s Role in the
Economy
Economic Plans
Income Distribution
Controlling Prices
Resources – Free Enterprise
Resources
are owned
and
controlled
by private
individuals
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The
government
controls the
resources and
may own
many of the
resources.
Resources
Socialism
Government Role in Economy
Free Enterprise
Government has
a small role to
play. It does not
make decisions
on the three basic
economic
questions.
Government Role in Economy
Socialism
The
government
exercises a
great deal of
control in the
economy. It
answers the
three basic
questions.
The
government
does not plan
out the
direction
economic
activities are
to take.
Economic Plans
Free Enterprise
Government
decision makes
write out a long
term and short
term plan with
all details of
how production
will take place.
Economic Plans
Socialism
income distribution
The way all the income
earned in a country is
divided among different
groups of income
earners.
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Income Distribution
Free Enterprise
Income
distribution is
unequal, but
there is income
mobility. Those in
lowest income
level can move
up to higher
levels.
Income Distribution
Socialism
Government
uses its powers
to redistribute
income , usually
directing it away
from the highest
earners.
Prices are
allowed to
fluctuate. The
government
does not
attempt to
control prices.
Controlling Prices
Free Enterprise
The
government
sets prices
for products
and labor.
Controlling Prices
Socialism
mixed economy
An economy that has
features of both free
enterprise and socialism.
Most economies are not purely
socialistic or capitalistic, but
rather mixed economies falling
somewhere in a spectrum between
the two.
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