1. East Cobb Middle School
Economics
Grade 6 Social Studies
East Cobb Middle School
Flip Book Companion

2. Traditional, Command, & Market
Economic
Systems
Traditional, Command, & Market

3. Scarcity is the Root of Economics
There is not a single country in the world that has an abundance of all the resources that its people need/want.
Scarcity = the limited supply of something
Because of this, countries must make a plan of how to use these limited resources.
This “plan” is called an…

4. Three Little Questions
When developing the economic plan, each country must ask three basic economic questions:
What goods/services will be produced?
How will goods/services be produced?
Who will consume the goods/services?
The way a country answers these questions determines what kind of economic system it will have:

5. Traditional Economy
All economic decisions are based on customs, traditions, & beliefs of the past.
People will make what they always made & do the same things their parents did.
The exchange of goods is done through bartering.
Bartering = trading without using money
Some Examples: villages in Africa & South America, the Inuit in Canada, Aborigines in Australia

6. Traditional Economy
Let’s see how a traditional economy fits in with the 3 economic questions…
What goods/services will be produced?
People follow tradition & make what their ancestors made.
2. How will goods/services be produced?
People produce goods the same way that their ancestors did.
3. Who will consume the goods/services?
People in the village who need them.

7. Command Economy All economic decisions are made by the Government.
The government owns most of the property, sets the prices of goods, determines the wages of workers, plans what will be made…everything.
This system has not been very successful. More and more countries are abandoning it.

8. Command Economy
This system is very harsh to live under; because of this, there are no PURE command countries in the world today.
Some countries are close: Cuba, former Soviet Union, North Korea, former East Germany, etc.
All of these countries have the same type of government: Communist! The government is in control of everything.

9. Command Economy
Let’s see how a command economy fits in with the 3 economic questions…
What goods/services will be produced?
Government decides what will be produced.
2. How will goods/services be produced?
Government decides how to make them.
3. Who will consume the goods/services?
Whoever the government decides to give them to.

10. Market Economy
Economic decisions are made based on the changes in prices that occur as buyers & sellers interact in the market place.
Free enterprise helps make these decisions.
Free Enterprise = competition between companies (shifts prices of goods/services)
The government has no control over the economy; private citizens answer all economic questions.

11. Market Economy
Let’s see how a command economy fits in with the 3 economic questions…
What goods/services will be produced?
Businesses (owned by private citizens) based decisions on supply & demand and free enterprise. (AKA $!)
2. How will goods/services be produced?
Businesses (owned by private citizens)
3. Who will consume the goods/services?
Consumers

12. Market Economy
In a truly free market economy, the government would not be involved at all. Scary…
There would be no laws to make sure goods/services were safe. *Food! Medicine!
There would be no laws to protect workers from unfair bosses.
Because of this, there are no PURE market economies, but some countries are closer than others.
Some Examples: US, UK, Australia, etc.

13. Hmmmm . . .
Since there are no countries that are purely command or purely market, what does that make them? Comket? Markmand?
Ha! Most democratic countries have some characteristics of both systems, so we keep it simple and call them:
Of course, most countries’ economies are closer to one type of system than another…

14. The Economic Continuum
Russia
Germany UK US
Australia
Cuba

15. Natural Resources, Human Capital, Capital Goods, & Entrepreneurship
Factors of
Economic
Growth
Natural Resources, Human Capital, Capital Goods, & Entrepreneurship

16. GDP
GDP is the total value of all the goods and services produced in that country in one year.
It measures how rich or poor a country is.
It shows if the country’s economy is getting better or worse.
Raising the GDP of a country can improve the country’s standard of living.

17. Factors of Production
There are 4 factors of production that influence economic growth within a country:
Natural Resources available
Investment in Human Capital
Investment in Capital Goods
Entrepreneurship
The presence or absence of these 4 factors determine the country’s Gross Domestic Product (GDP) for the year.

18. Natural
Resources

19. Natural Resources
All of the things found in or on the earth; “gifts of nature”.
All resources are limited.
Examples: land, water, sun, plants, time, air, minerals, oil, etc.

20. Economic Growth
Important to countries: without them, countries must import the resources they need (costly)
A country is better off if it can use its own resources to supply the needs of its people.
If a country has many natural resources, it can trade or sell them to other countries.

21. Human
Capital

22. Human Capital
This is all of the skills, talents, education, and abilities that human workers possess---and the value that they bring to the marketplace.
Examples: computer/reading/writing/math skills, talents in music/sports/acting, ability to follow directions, ability to serve as group leader & cooperate with group members
A country’s Literacy Rate impacts Human Capital (the percent of the population over 15 that can read/write).

23. Economic Growth
Nations that invest in the health, education, & training of their people will have a more valuable workforce that produces more goods & services.
People that have training are more likely to contribute to technological advances, which leads to finding better uses of natural resources & producing more goods.

24. Capital
Goods

25. Capital Goods
This is all of the goods that are produced in the country and then used to make other goods & services.
Examples: tools, equipment, factories, technology, computers, lumber, machinery, etc.
What are some capital goods used in our classroom?

26. Economic Growth
The more capital goods a country has, the more goods & services they are able to produce.
If a business is to be successful, it cannot let its equipment break down or have its buildings fall apart.
New technology can help a business produce more goods for a cheaper price.
Money is NOT a capital good, but rather a medium of exchange!

27. Entrepreneurship

28. Entrepreneurship
People who provide the money to start and operate a business are called entrepreneurs.
These people risk their own money and time because they believe their business ideas will make a profit.
They bring together natural, human, and capital resources to produce goods or services to be provided by their businesses.

29. Entrepreneurship
Entrepreneurs have 2 characteristics that make them different from the rest of the labor force:
1. innovative (have creative ideas)
2. risk taker (use limited resources in an innovative way in hopes that people will buy the product)
It can be several things:
Starting your own business
Inventing something new
Changing the way something was previously done so that it works better

30. Economic Growth
Entrepreneurship creates jobs and lessens unemployment.
It encourages people to take risks, and in doing so, they’ve created better healthcare, education, & welfare programs.
The more entrepreneurs a country has, the higher the country’s GDP will be.

31. Economic Growth
Economic growth in a country is measured by the country’s Gross Domestic Product (GDP) in one year.
It measures only what has been produced within the country--this doesn’t include products that are imported.
It is much better for the economy of a country to produce its own goods and services (this increases the country’s GDP).
Measuring the GDP each year can:
Compare one country’s economy to another
Check a country’s economic progress over time
Show if the economy is growing or not

32. Standard of Living
The higher a country’s GDP, the better standard of living for the people within the country.
In order for a country to have an increasing GDP, it must invest in human capital through education & training, and it must produce goods that have value to be sold within the country or exported.

33. Summary
To encourage economic growth and raise the living standards of its citizens, there must be investment in human capital and capital goods.
Economic growth is measured by increases in GDP over time.
How large a nation’s GDP can be is determined by the availability and quality of its natural, human, and capital resources.
To increase economic growth and GDP over time requires investments in both capital (factories, machines) and human capital (education, training, skills of labor force).

34. Trade
Barriers
Tariff, Quota, & Embargo

35. International Trade
This involves the exchange of goods or services between countries.
International trade is described in terms of:
Exports: the goods and services sold to other countries
Imports: the goods or services bought from other countries
Countries trade goods because no country has all the resources necessary to efficiently produce everything its people need.

36. Free Trade Vs. Trade Barriers
With free trade, nothing hinders or gets in the way of two nations trading with each other.
Countries sometimes set up trade barriers to restrict trade because they want to produce and sell their own goods:
Trading is difficult because things get in the way.
There are costs and benefits related to free trade as well as trade barriers.

37. Trade Barriers
Trade barriers keep products from being bought and sold between countries.
They hinder (stop or slow down) global trade.
There are 3 major types of economic trade barriers:
Tariff
Quota
Embargo
Most barriers to trade are designed to prevent imports from entering a country.

38. Physical Trade Barriers
Natural barriers can slow down trade between nations by making it harder and more expensive to move goods from place to place.
Example: The Swiss Alps make it difficult for northern Italy to trade with Switzerland. The countries are building tunnels through the mountains to help make trade easier.
Example: The Sahara Desert makes it extremely hard for countries in Northern Africa to trade with the rest of the continent.

39. Tariff

40. What is a Tariff?
A tariff is a tax put on goods imported from other countries.
The effect of a tariff is to raise the price of the imported product.
It makes imported goods more expensive so that people are more likely to purchase lower-priced items produced domestically.

41. Tariffs
Tariffs are taxes charged for goods that leave or enter a country.
In order to get a product from another country, you have to pay extra for it.
It is the same concept as sales tax that is put on items your purchase at the store.
Think of how many goods the United States imports.
How do you think tariffs might affect the economy?
How do you think this affects world trade?

42. Quota

43. What is a Quota?
A quota is a restriction on the amount of a good that can be imported into country.
Putting a quota on a good creates a shortage, which causes the price of the good to rise.
Consumers are less likely to buy this good because it’s now more expensive than the good produced in the home country.
Quotas encourage people to buy domestic products, rather than foreign goods (boosts country’s economy).

44. Quota
A quota is when a country limits the amount of a product that can be imported from another country.
Example: A country might limit the amount of cars imported from other countries to 500,000 per year.
What do you think happens when the country reaches the import limit? Where will the rest of the cars come from?
How do you think this quota impacts the country’s economy?

45. Embargo

46. What’s an Embargo? Trade embargoes forbid trade with another country.
The government orders a complete ban on trade with another country.
The embargo is the harshest type of trade barrier and is usually enacted for political purposes to hurt a country economically.

47. Embargo
An embargo is when one country completely refuses to trade with another country.
Example – The US had an embargo with South Africa during apartheid.
Example – The US has an embargo with Cuba that has lasted over 50 years.
This is usually done between two countries that are disagreeing over political issues.
How do you think embargoes affect world trade?

48. Benefits of Trade Barriers
Trade barriers provide many benefits:
They protect homeland industries from competition.
They protects jobs.
They help provide extra income for the government.
They increase the number of goods people can choose from.
They decreases the costs of these goods through increased competition.

49. Costs of Trade Barriers
Tariffs increase the price of imported goods.
The tax on imported goods is passed along to the consumer so the price of imported goods is higher.
Less competition from world markets means there is an increase in the price of goods.
With quotas, there is a smaller variety of goods available for consumers to choose from.

50. How It Impacts the Standard of Living
Literacy
Rate
How It Impacts the Standard of Living

51. Literacy Rate A literate person is one who can read and write.
Being literate is a major factor in whether a person can get a job and be successful in the workplace.
Literacy rate is the percentage of a country’s population over the age of 15 that can read and write.
The United States has a very high literacy rate.
About 99% of Americans are literate.

52. Economic Impact
Countries with high literacy rates are generally wealthier.
They can compete in the world economy.
Having a high literacy rate is important to the success of the people in a country.
People who can read get better jobs, earn more money, and can afford to buy better things.
They can afford housing, food, healthcare, & clothing for their families.

53. High Literacy Rate = High Standard of Living
The standard of living (economic level of the people in the country) is often higher in countries where the literacy rate is high.
High Literacy Rate = High Standard of Living

54. Standard of Living
This measures how well-off the people are in a country.
Housing, food, health care, educational opportunities, and income can be part of the standard of living.
Basically: what it costs a family to live

55. Cycle of Poverty
Having basic reading & writing skills is very important.
Without skills, workers are stuck in the lowest-paying jobs.
A cycle of poverty can develop when people cannot get an education.
Illiterate people are forced to get low-paying jobs, so they cannot get enough money to pay for their children’s education…This cycle can continue for generations.
The standard of living remains low for these families because their education level is low.

56. Cycle of Poverty
Without the skills of reading and writing, workers cannot get better jobs.
Developing countries are poor, and their people are generally uneducated.
It is difficult to pay for education, when there is little money for food…

57. Improving Literacy Rate
The goal of every country is to have a 100% literacy rate among its people.
One reason that many people cannot read/write is that their communities cannot afford to pay for teachers or schools.
Many governments, missionaries, & aid groups come to the poorest countries to assist the people in educating their children

59. Europe Most European countries have high literacy rates.
Many European countries are industrialized—they depend on manufacturing rather than farming for their wealth.
The increased wealth allows these countries to provide better education and health care.
The standard of living is also high.

60. U.K. & Germany The literacy rate of both countries is nearly 100%.
Both countries have made large investments in human capital.
The workforce is very well trained and educated.
This has helped the standard of living in these countries improve over time.

61. Russia Russia has the most poverty of these 3 European countries.
In the former Soviet Union, the government assigned everyone a job.
Today, workers must show that they are skilled & valuable to the business in order to keep their jobs.
Russia’s government is now spending large amounts of money to train workers & educate youth so that they have more opportunities to be successful in the economy.