1. Economic Understandings SS6E5 The student will analyze different economic systems. a)Compare how traditional, command, and market economies answer the economic questions of b)1-what to produce, c)2-how to produce, and d)3-for whom to produce

2. Answering Economic Questions  Scarcity is the limited supply of something. Every country must deal with the problem of scarcity. No country has everything that its people want and need. As a result, every country develops an economic system to determine how to use its limited resources to answer the three basic economic questions.

3. 1)What goods and services will be produced? 2)How will goods and services be produced? 3)Who will consume the goods and services? The way a society answers these questions will determine its economic system.

4. Traditional Economy  In a traditional economy, the customs and habits of the past are used to decide what and how goods will be produced, distributed, and consumed. In this system, each member of the society knows early in life what his or her role in the larger group will be. Since jobs are handed down from generation to

5. Generation, there is very little change in the system over generations. In a traditional economy, people are depended upon to fulfill their traditional role. If some people are not there to do their part, the system can break down. Farming, hunting and gathering, and cattle herding are often a part of a

6. Traditional economy. There are no examples of a traditional economy in Europe.

7. Command Economy  In a centralized command economy, government planning groups make the basic economic decisions. They determine such things as which goods and services to produce, the prices, and wage rates. Individuals and corporations generally do not own businesses or farms; these are owned by the government. Workers at a business are

8. told what to produce and how much to produce in a given time. This is called a quota. The government’s goal is to assign quotas to all workers. The expectation is that when all workers meet all quotas, everyone in the country will be able to have the goods they need when they need them.

9.  The former Soviet Union was an example of a command economy. After it collapsed in 1991, the new Russian Federation adopted a more mixed economy. However, the Russian economy is still less free than most other European countries. The government owns many of the large businesses and has many limits on private ownership.

10. Market Economy  In a decentralized market economy, decisions are guided by changes in prices that occur between individual buyers and sellers in the marketplace. Other names for market systems are ---free enterprise, capitalism, and laissez-fair.  In a market economy, individuals or

11. Corporations generally own businesses and farms. Each business or farm decides what it wants to produce. The law of supply and demand determines the price people pay for things.  Supply- is the amount of goods available.  Demand- is how many consumers want the goods.

12.  Most of Europe operates in a market economy. The United Kingdom has a market economy. It is considered one of the most free economies in Europe. “Free” means that businesses can operate without too many rules from the government. People are free to start a business and can do so

13. quickly.  Courts use the laws of the U.K. to protect the property rights of citizens.

14. Mixed Economy  SS6E5 The student will analyze different economic systems. b. Explain how most countries have a mixed economy located on a continuum between pure and market and pure command.

15.  There are no pure command or market economies. All modern economies have characteristics of both systems and are mixed economies. However, most economies are closer to one type of economic system than another.

16.  In a truly free market economy, for example, the government would not be involved at all. There would be no law to protect workers from unfair bosses. There would be no rules to make sure that credit cards were properly protected. Many societies have chosen to have some rules to protect consumers, workers, and businesses.

17. These rules reduce the freedoms that businesses have, but they also protect the workers and consumers. The following diagram shows some world economics on a scale. The ones on the left are most restricted. The ones on the right are most free.

18. Mixed Economy Continuum  Command Economy Market Economy    ^ ^ ^ ^ ^  Cuba Russia Germany UK USA

19. Quiz Yourself 1.In the United Kingdom, who decides which goods will be produced and sold? a. business owners b. citizens c. the monarch d. the prime minister

20. 2. Which country owns most of the large and important industries within its borders? a. Germany b. Russia c. United Kingdom d. none of these

21. 3. Which is LEAST likely to be found in Europe? a. capitalism b. command economy c. market economy d. traditional economy

22.  Which European country shown in the previous diagram has the LEASTfree economy? a. Cuba b. Germany c. Russia d. United Kingdon

23.  Because most economies have characteristics of the command economy and the market economy, we say they are… a. communist b. free c. hybrid d. mixed