1. Chp. 3: Economic Systems

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

3. Essential Understandings
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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.
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?
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.
Adam Smith, author of The Wealth of Nations, is often called the “father of economics.”
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.

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

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

6. Three Basic Economic Questions
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What goods and services are to be produced?
How are goods and services to be produced?
Who will consume these goods and services?

7. Economic Goals Societies Must Address
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Economic Freedom – the ability to make our own economic decisions without interference from the government
Efficient Economy – strives for full employment – when all who want to work can find jobs, because unemployed workers are a wasted resource
Economic Equity – fair and just distribution of a society’s wealth
What constitutes fair?
in the US we have cars, internet, antibiotics
Disagreements arise from what to provide and how
electricity, food, clothing
What is fair?

8. Economic Goals Societies Must Address
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Economic Growth – characterized by scientific and technological innovation
Economic Security – providing less fortunate members of a society with necessities such as food, shelter and health care
Economic Stability – goods and services we count on are there when we want them
What constitutes fair?
in the US we have cars, internet, antibiotics
Disagreements arise from what to provide and how
electricity, food, clothing
What are your top two? Why?

9. Matrix of Economic Systems
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What to produce?
How to produce
For Whom to produce
Goals
Country Examples
Command
Traditional
Market

10. Matrix of Economic Systems
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What to produce?
How to produce
For Whom to produce
Goals
Country Examples
Command
The government/central authority decides.
Traditional
Custom and tradition dictate
Market
Consumers decide what will be produced by casting their “dollar votes.”

11. Matrix of Economic Systems
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What to produce?
How to produce
For Whom to produce
Goals
Country Examples
Command
The government/central authority decides.
Traditional
Custom and tradition dictate
Custom and tradition dictate Mainly agricultural and labor is divided along gender lines
Market
Consumers decide what will be produced by casting their “dollar votes.”
Producers choose the most profitable method of production.

12. Matrix of Economic Systems
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What to produce?
How to produce
For Whom to produce
Goals
Country Examples
Command
The government/central authority decides.
Traditional
Custom and tradition dictate
Custom and tradition dictate Mainly agricultural and labor is divided along gender lines
Market
Consumers decide what will be produced by casting their “dollar votes.”
Producers choose the most profitable method of production.
Goods and services are consumed by those who are willing and able to pay the market price.

13. Matrix of Economic Systems
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What to produce?
How to produce
For Whom to produce
Goals
Country Examples
Command
The government/central authority decides.
Economic Equity and Security
Traditional
Custom and tradition dictate
Custom and tradition dictate Mainly agricultural and labor is divided along gender lines
Economic Stability and Security
Market
Consumers decide what will be produced by casting their “dollar votes.”
Producers choose the most profitable method of production.
Goods and services are consumed by those who are willing and able to pay the market price.
Economic Freedom and Efficiency

14. Matrix of Economic Systems
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What to produce?
How to produce
For Whom to produce
Goals
Country Examples
Command
The government/central authority decides.
Economic Equity and Security
China, Vietnam, Cuba, North Korea
Traditional
Custom and tradition dictate
Custom and tradition dictate Mainly agricultural and labor is divided along gender lines
Economic Stability and Security
Ethiopia, Somalia, Afghanistan
Market
Consumers decide what will be produced by casting their “dollar votes.”
Producers choose the most profitable method of production.
Goods and services are consumed by those who are willing and able to pay the market price.
Economic Freedom and Efficiency
United States*, Canada, Australia, Hong Kong, Ireland

15. Notes about the Matrix of Economic Systems
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The 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.

16. Shut up and Color Time!
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17. Directions: Label the following countries on the map
Directions: Label the following countries on the map. You may abbreviate. Then, 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)
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Canada
Ireland US
North
Korea
China
Cuba
Afghanistan
Hong Kong
Vietnam
Ethiopia
Somalia
Australia
Is there a geographic pattern that you notice with the different economies?

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

19. Adam Smith and the Free Market
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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.
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.

20. IV. Characteristics of Market Economies
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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
competition among businesses, which tends to lower prices and raise quality
prices determined in the marketplace through the interaction of supply and demand

21. IV. Characteristics of Market Economies
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consumer sovereignty, the concept that consumers’ “dollar votes” tell businesses what to produce
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
limited government that acts as a referee—protecting consumers, workers, the environment, and competition in the marketplace.

22. Title
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