Chp. 3: Economic Systems

Objectives p. 012 EPF.1 student will demonstrate knowledge of basic economic concepts and structures by e) comparing the characteristics of market, command, traditional, and mixed economies f) identifying Adam Smith and describing the characteristics of a market economy

Essential Understandings p. 012 1. A variety of methods can be used to allocate goods and services. People acting individually or collectively through government choose which methods to use to allocate different kinds of goods and services. 2. People in all economies must answer three basic questions: What goods and services will be produced? How will these goods and services be produced? Who will consume them? 3. National economies vary in the extent to which they rely on government directives (central planning) and signals from private markets to allocate scarce goods, services, and productive resources. 4. Adam Smith, author of Wealth of Nations, is often called the father of economics. 5. A market economy has certain basic characteristics including private ownership of resources, prices determined in markets, competition among businesses, consumer sovereignty, profit motive, and limited government.

Essential Questions 1. What are the three basic economics questions? 2. How does each type of economy answer the three basic economic questions? 3. What were some of Adam Smith s economic theories? 4. What are the characteristics of a market economy, and why is each important? p. 012

Preview Cartoon Analysis p. 013

Title p. 013 1. Where are the people in each cartoon 2. Who or what decides what consumers get in Cartoon A? a. Cartoon B? 3. What advantages and disadvantages do you see represented in Cartoon A? a. Cartoon B? 4. Which store would you prefer to shop in, and why?

Three Basic Economic Questions 1. What goods and services are to be produced? 2. How are goods and services to be produced? 3. Who will consume these goods and services? p. 014

Economic Goals Societies Must Address p. 014 1. Economic Freedom the ability to make our own economic decisions without interference from the government 2. Efficient Economy strives for full employment when all who want to work can find jobs, because unemployed workers are a wasted resource 3. Economic Equity fair and just distribution of a society s wealth What is fair?

Economic Goals Societies Must Address p. 014 4. Economic Growth characterized by scientific and technological innovation 5. Economic Security providing less fortunate members of a society with necessities such as food, shelter and health care 6. Economic Stability goods and services we count on are there when we want them What are your top two? Why?

Matrix of Economic Systems What to produce? How to produce For Whom to produce Goals Country Examples p. 014 Comman d Tradition al Market

Matrix of Economic Systems Comman d What to produce? How to produce For Whom to produce Goals Country Examples p. 014 Tradition al Market Consumers decide what will be produced by casting their dollar votes. Mainly agricultural and labor is divided along gender lines Producers choose the most profitable method of production.

Matrix of Economic Systems Comman d What to produce? How to produce For Whom to produce Goals Economic Equity and Security Country Examples p. 014 Tradition al Market Consumers decide what will be produced by casting their dollar votes. Mainly agricultural and labor is divided along gender lines Producers choose the most profitable method of production. Goods and services are consumed by those who are willing and able Economic Stability and Security Economic Freedom and Efficiency

Matrix of Economic Systems Comman d What to produce? How to produce For Whom to produce Goals Economic Equity and Security p. 014 Country Examples China, Vietnam, Cuba, North Korea Tradition al Market Consumers decide what will be produced by casting their dollar votes. Mainly agricultural and labor is divided along gender lines Producers choose the most profitable method of production. Goods and services are consumed by those who are willing and able Economic Stability and Security Economic Freedom and Efficiency Ethiopia, Somalia, Afghanistan United States*, Canada, Australia, Hong Kong, Ireland

Notes about the Matrix of Economic Systems p. 014 United States is primarily a market economy; however, since it has some elements of government involvement (e.g., taxation and regulation) it is sometimes called a mixed economy. Hong Kong is the freest of the market economies in the world. Most of the world s economies today are mixed economies and exist on a continuum between market and command. Some lean toward market; others lean toward command.

Shut up and Color Time! p. 015

Directions: Label the following countries on the map. You may abbreviate. n, pick a color to represent command economies, market economies, and traditional economies. Fill in the key below the map and color in the countries you labeled with the color that represents their economic system. (Canada, United States, Hong Kong, Ireland, Australia, Ethiopia, Somalia, Afghanistan, China, Vietnam, North Korea, Cuba) p. 015 US Canada Ireland China North Korea Cuba Afghanistan Ethiopia Somalia Hong Kong Vietnam Australia

Adam Smith and the Free Market p. 015 1. Adam Smith believed that people, acting in their own selfinterest, would work hard and produce what consumers want as if directed by an invisible hand. 2. Smith argued for trade, saying it opened new markets where surplus goods could be sold and allowed for cheaper goods to be imported. 3. Smith believed that competition among businesses would keep prices in check.

Adam Smith and the Free Market p. 015 4. Smith believed there was a limited but important role for government to do things such as enforce contracts, grant patents and copyrights, and provide public works such as roads. 5. Smith observed that specialization and division of labor in a pin factory allowed workers to produce many times more pins than if each worker had been working alone.

IV. Characteristics of Market Economies p. 016 1. private ownership of resources, which provides incentives for the owners of resources to weigh the value of present uses against the value of conserving the resources for future use 2. competition among businesses, which tends to lower prices and raise quality 3. prices determined in the marketplace through the interaction of supply and demand

IV. Characteristics of Market Economies p. 016 4. consumer sovereignty, the concept that consumers dollar votes tell businesses what to produce 5. profit motive, an incentive for businesses to produce what consumers demand and to produce those goods and services efficiently keeping costs down in hopes of earning greater profit 6. limited government that acts as a referee protecting consumers, workers, the environment, and competition in the marketplace.