1. The United States Economy

2. Virginia Standards of Learning
CE.11 The student will demonstrate knowledge of how economic decisions are made in the marketplace by
b) comparing the differences among traditional, free market, command, and mixed economies;
c) describing the characteristics of the United States economy, including limited government, private property, profit, and competition.
CE.12 The student will demonstrate knowledge of the structure and operation of the United States economy by
a) describing the types of business organizations and the role of entrepreneurship;

3. Student objectives
Compare traditional, free market, command, and mixed economies. (CE.11b)
Describe the characteristics of the U. S. economy. (CE.11c)
Describe the types of business organizations and the role of entrepreneurship. (CE.12a)

4. What are the fundamental economic question?
What to produce and how to produce it
How much to produce
For whom to produce

5. List two primary characteristics of a traditional economy.
Economic decisions are based on custom or historical precedent
People perform the same type of work as their ancestors, regardless of ability or potential

6. List six characteristics of a free market economy.
Private ownership of property/resources
Profit motive
Competition
Consumer sovereignty
Individual choice
Minimal government involvement in the economy

7. List three characteristics of a command economy.
Central ownership of property and resources
Centrally-planned economy
Lack of consumer choice

8. List four characteristics of a mixed economy.
Individuals and citizens are decision makers for the private sector.
Government is the decision maker for the public sector.
Government’s role is greater than in a free market economy and less than in a command economy.
No country relies exclusively on markets to deal with resource allocation.

9. List five characteristics of the United States economy.
Free markets in which supply and demand determine price and resource allocation
Private property – capital is owned by individuals and businesses
Profit motive – individuals and businesses work to try to make money
Competition – business rivalries lead to low prices, better quality, and efficiency
Consumer sovereignty – consumers determine through purchases what gets produced

10. Explain the following terms:

11. Profit
Money left over from revenues after all expenses have been paid

12. Consumer sovereignty
People are free to decide what to buy and what price they are willing to pay, and these interactions determine what goods and services get produced

13. Public sector
That which is owned and controlled by the government

14. Private sector
That which is owned and controlled by individual citizens and businesses

15. Free markets
Markets that are allowed to operate without undue government interference

16. Resource allocation
The distribution of scarce resources in an economy

17. Entrepreneur
A person who takes a risk to invest capital in order to seek profits

18. List three types of factors of production.
Human resources – people who work
Natural resources – raw materials that come from nature (wood, water, etc.)
Capital resources – land, factories, machines, tools, and money used in production

19. Describe the contributions of each of the following economists.

20. Adam Smith Free market capitalism (“laissez-faire”)
The power of self-interest
Allow citizens to own capital resources
Wrote The Wealth of Nations

21. Karl Marx Critic of capitalism
Predicted a volatile business cycle, monopolies, and wide income distribution
Wrote The Communist Manifesto

22. John Maynard Keynes
Outlined a successful way to regulate a capitalist economy
Monetary policy – control the amount of money in circulation
Fiscal policy – control government spending to regulate the economy

23. List and describe the basic types of business ownership.
Sole proprietorship
A type of business owned by one person who takes all of the risk and all of the profits

24. List and describe the basic types of business ownership.
Partnership
A type of business with two or more owners who share the risk and the profits

25. List and describe the basic types of business ownership.
Corporation
A type of business organization with many owners (stockholders) whose liability is limited to their investment. A corporation is regarded legally as a single person.