Mrs. Ayers Woodstock Middle School Economics Systems Mrs. Ayers Woodstock Middle School

Descriptive Overview: * 07/16/96 Descriptive Overview: In this lesson, students will be exposed to four types of world economies. They will also learn the historical background that led to the formation of those economies, specifically command and mixed economies. *

Lesson Objectives/Goals * 07/16/96 Lesson Objectives/Goals Describe and compare the economic systems predominant in the world today. Compare and contrast traditional, command and market economies. Explain how mixed economies are a combination of other economic systems. *

Terms to Know Capitalism Natural Resources Free Market Entrepreneur Command Traditional Mixed Capital Land Labor Capital Investment Natural Resources Entrepreneur Trade Barriers Tariffs Quotas Embargo Currency Exchange Specialization Personal Investment

The fundamental economic problem in any society is to provide a set of rules for allocating resources and/or consumption among individuals who can't satisfy their wants, given limited resources. What? The goal of each economy is for the country to establish rules for distributing resources, and how you can get resources to people who need them, even when the resource is limited.

For whom will it be produced? In every nation, no matter what the form of government, what the type of economic system, who controls the government, or how rich or poor the country is, three basic economic questions must be answered. They are: What and how much will be produced? (You don’t want too much or too scarce of product) Scarcity- when there is not enough of the product to meet the needs/wants of the people How will it be produced? There are many ways to produce a desired item. For whom will it be produced?

Adam Smith Adam Smith (1723-1790) is considered the father of modern economic theory

Click for Communist Video Karl Marx Karl Marx (1818-1883) Co-author The Communist Manifesto Click for Communist Video

While there are many terms that are used to describe the types of economies that exist in the world, most economists agree that there are four major types of economic systems.

TYPES OF ECONOMIC SYSTEMS On the RIGHT side of your paper draw this chart, take up the whole page! TYPES OF ECONOMIC SYSTEMS Definition Associated Terms Examples in Practice 1) Market economy 2) Command economy 3) Traditional economy 4) Mixed economy

Market economy An economic system in which individuals own and operate the factors of production. AKA: Free enterprise, Capitalism, pure market United States, Great Britain, Japan

Market Economies Resources are owned and controlled by individuals Economic decisions are made by individuals competing to earn profits based upon the wants/needs of the consumer (supply and demand) Individual freedom is considered very important Profit is the motive for increasing work rather than quotas

Command economy An economic system in which the government owns and operates the factors of production. AKA: Socialism, Communism Cuba, North Korea, Laos

Command Economies The government or other central authority makes decisions and determines how resources will be used Change can occur relatively easily There is little individual freedom There is no competition Businesses are not run to create a profit

Command Economies Consumers have few choices in the market place Factories are concerned with quotas Shortages are common because of poorly run factories and farms The government dictates the job in which you work

Command Economies The government sets the prices of goods and services Examples of command economies: Cuba and North Korea

Interactive Notebook Question 2’s ask 1’s the following question: What is the difference between a Market Economy and a Command Economy?

Traditional economy An economic system based upon customs and traditions. Economy is based upon agriculture and hunting. Traditional economies are found in rural, non-developed countries Some parts of Asia, Africa, South America and the Middle East have traditional economies Customs govern the economic decisions that are made Technology is not used in traditional economies. AKA: Non-Industrialized, Agrarian societies Chad, Haiti, Rwanda

Traditional economy Farming, hunting and gathering are done the same way as the generation before Economic activities are usually centered toward the family or ethnic unit Men and Women are given different economic roles and tasks

Mixed economy Israel India An economic system that has features of both market and command economies. Israel

In reality there are no pure market economies, nor are there any pure command economies. For example, even in the United States, where free enterprise reigns, the government plays a major role in the economy. Minimum wages, social security, and regulatory policies are examples of government involvement. In China, for example, some private ownership of businesses is allowed, however the government still maintains tight control over the factors of production and prices.

United States Great Britain Japan TYPES OF ECONOMIC SYSTEMS Definition Associated Terms Examples in Practice 1) Market economy An economic system in which individuals own and operate the factors of production. Free enterprise Capitalism United States Great Britain Japan 2) Command economy An economic system in which the government owns and operates the factors of production. Socialism Communism Cuba China Laos 3) Traditional economy An economic system based upon customs and traditions. Economy is based upon agriculture and hunting. Non-Industrialized Agrarian societies Chad Haiti Rwanda 4) Mixed economy An economic system that has features of both market and command economies.

The Differences Between Market and Command Economies

Interactive Notebook Question (Left Side) What type of economy is in Japan?

Gross domestic product (GDP) is the amount of money a country makes in a year. GDP is defined as the total market value of goods sold and services produced within the country in a given period of time (usually a calendar year).

Map of countries by 2007 GDP (nominal) per capita (IMF, April 2008).

Factors of Production Land Labor (Human Capital) How can you increase your value as a laborer? Capital ($$$) Resources Entrepreneur

Land Land in economics means not only the land but all resources within. Includin all mineral deposits.

Labor (Human Capital) In economics, the skills and knowledge a person has makes them more valuable as a worker.

Building a Workforce How a country manages its resources makes a big difference in the strength of its economy. Standard of living-the ability to provide wants and needs Investing in HUMAN CAPITAL will pay off for years to come. The best way to increase standard of living is invest in Human Capital. As humans increase their knowledge, they become more valuable as a worker and they are capable of completing more complex tasks which are more valuable to businesses.

Capital In economics, capital or capital goods is either money or something of considerable value. Goods with the following features are capital: It can be used in the production of other goods (this is what makes it a factor of production). It was produced and is not a natural product.

Natural resources There are 2 types of natural resources: Renewable and Non-renewable. Natural resources include soil, timber, oil, minerals, and other goods taken more or less from the Earth. A nation's natural resources often determine its wealth in the world economic system, and in determining its political influence. (give an example please) In recent years, the depletion of natural resources has become a political and economic issue. Why?

CHALLENGE!!! List one man made resource that did not originally begin as a natural resource.

Interactive Notebook Question Pick one of the following country examples to analyze and determine if starting a business there would work, explain your theory Country “A” has a very skilled labor force of college and trade school education, very few natural resources, and is in a financial depression with little capital. Country “B” has a hard working labor force of traditional farmers, large amounts of natural resources, yet only has minimal capital for new businesses. Country “C” has a somewhat skilled labor force of high school level education, extensive natural resources, and limited capital for new investment.

Entrepreneur An entrepreneur is a person who begins their own business

Trade Barriers A trade barrier is a general term that describes any government policy or regulation that restricts international trade. The barriers can take many forms, including: quotas Tariffs Embargo

Tariffs A tariff is a tax on goods when they cross a national border. A "protective tariff" is intended to artificially inflate prices of imports and "protect" domestic industries from foreign competition.. It protects the locally made good to encourage people to buy domestic products.

Quota An import quota is a type of trade restriction that limits the quantity of goods that can be imported into a country. This encourages people to buy domestic (made in your country) products. For example, the US might limit the number of cars imported from Japan to encourage you to buy a car made in the United States.

Embargo An embargo is when a country refuses to buy goods from another country. The embargo is usually used as a political punishment . For example, the United States has an embargo against Cuba.

Specialization Each person specializes in one occupation, to become the best at that job as possible. Countries often do the same, but geography effects the type of specialization. Why wouldn’t you want everyone to specialize in the same area? How does specialization force countries to trade with other countries?

Interactive Notebook Question Summarizing Drawing Draw an example of three countries that use specialization.

Currency Exchange

Forms of Currency Shells Precious Metals Bills or Notes Plastic Silver Gold Bills or Notes Paper $ (Dollars, Peso, Euro, and so on) Plastic Debit and Credit Cards The Future?????? Does every country have their own money???

Foreign Exchange Market: What Is It? Why do we need an exchange rate? Countries often use different types of money. Not all money is equal in value to another country's money; therefore you have to have a math formula if would want to change your money from one type to another. The foreign exchange market, or the "FX" market, is where the buying and selling of different currencies takes place. The price of one currency in terms of another is called an exchange rate.

How does FX affect an economy? When the United States dollar becomes stronger, foreign goods and services become cheaper, and goods and services from the United States will become more expensive. When the dollar becomes weaker then the opposite happens: goods and services from the United States become cheaper, thereby increasing exports, and foreign (from another country) goods and services will become more expensive.

Capital Investment Personal Investment Capital Investment refers to the decision for a company to invest money into factories, machinery, and technology. Personal Investment When a person invest the personal money into a bank account, a saving account, or a stock in hopes of getting a return in their investment.

Budget Credit Income A plan for savings and spending A persons ability to borrow money based upon their past history of paying money they borrowed Income The amount of money a person earns from working.

Just write about it!!!! On the next slide you will see a copy of the Terms to Know. I would like you to write four sentences. Rules: You must use at least vocabulary terms per sentence. They must be used accurately.

Ready…Get Set…Go!!!!! Capitalism Natural Resources Free Market Command Traditional Mixed Capital Land Labor Capital Investment Natural Resources Entrepreneur Trade Barriers Tariffs Quotas Embargo Currency Exchange Specialization Personal Investment

Bibliography Federal Reserve of New York. http://www.ny.frb.org/education/fx/foreign.html Retrieved March 13, 2009