How Economic Systems Work
As buyers purchase goods and services, they signal to the producers what ought to be made. If people want to wear pants with farm animal designs, they buy them. Producers have to be observant to anticipate demand. As they see that the stock of cow pants is flying off the shelves, they will create many more of them. Buyers and sellers are able to communicate effectively using just money.
All societies must answer three questions. The answers they select determine what type of economy, or economic system, the society primarily has a command or market economy. The three questions are:
- What should we produce?
- How should we produce?
- For whom should we produce?