Terms to Know
Free Market
 Command
 Traditional
 Mixed
 Capital
 Land
 Labor

Natural Resources
 Entrepreneur
 Trade Barriers
 Tariffs
 Quotas
 Embargo
 Currency Exchange
 Specialization

Why do we study Economics?

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.
Graphic Organizer
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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? Literally, billions of
different outputs could be produced with society's scarce
resources. (Scarcity- In economics, scarcity is the problem
of infinite human needs and wants, in a world of finite
resources. In other words, society does not have sufficient
productive resources to fulfill those wants and needs
How will it be produced? There are many ways to produce
a desired item. It may be possible to use more labor and less
capital, or vice versa. It may be possible to use more unskilled
labor to substitute for fewer units of skilled labor.
For whom will it be produced? Once a commodity is
produced, some mechanism must exist that distributes finished
products to the ultimate consumers of the product. The
mechanism of distribution for these commodities differs by
economic system.
Graphic Organizer
What and
How Much
will be
produced?
Economics
Questions
For whom
will it be
produced?
How will it
be
produced?

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.
On the RIGHT side of your paper draw
this chart, take up the whole page!
TYPES OF ECONOMIC SYSTEMS
Definition
1) Market economy
2) Command economy
3) Traditional economy
4) Mixed economy
Associated Terms
Examples in Practice
Market economy
An economic system in which individuals
own and operate the factors of production.
 AKA: Free enterprise, Capitalism
 United States, Great Britain, Japan

Command economy
An economic system in which the
government owns and operates the
factors of production.
 AKA: Socialism, Communism
 Cuba, China, Laos

LFS 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.
 AKA: Non-Industrialized, Agrarian societies
 Chad, Haiti, Rwanda

Mixed economy
An
economic system that
has features of both market
and command economies.
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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.
While we could say that both the United States and China
are mixed economies because they contain both market
and command economic features, to do so would be
misleading because the role that the respective
governments play in the economy are quite different.
TYPES OF ECONOMIC SYSTEMS
1) Market economy
Definition
Associated Terms
An economic system in
which individuals own and
operate the factors of
production.
Free enterprise
Capitalism
2) Command economy
An economic system in
which the government
owns and operates the
factors of production.
3) Traditional economy
An economic system
based upon customs and
traditions. Economy is
based upon agriculture
and hunting.
4) Mixed economy
An economic system that
has features of both
market and command
economies.
Examples in Practice
United States
Great Britain
Japan
Socialism
Communism
Cuba
China
Laos
Non-Industrialized
Agrarian societies
Chad
Haiti
Rwanda
LFS Question
What
type of Economy is in
Japan?
Gross domestic product (GDP)

is one of the measures of national income and output for
a given country's economy. GDP is defined as the total
market value of all final goods 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
 Capital
 Resources
 Entrepreneur

Land

Land in economics comprises all
naturally occurring resources whose
supply is inherently fixed. Such as
mineral deposits. In classical
economics it is considered one of
three factors of production (along
with capital and labor).
Labor (Human Capital)

In economics, labor is a measure of the work done
by human beings. There are theories which have
created a concept called human capital (referring
to the skills that workers possess, as in the
education and training the workers have had).
LFS Question
 3-2-1
 Give 3 examples of LAND in economics.
 Lists 2 FACTORS OF PRODUCTION.
 Provide 1 skill a worker might have.
Capital
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In economics, capital or capital goods or real capital
refers to items of extensive value, it can also be applied to
the amount of wealth a person controls or is capable of
controlling.
In classical economics, capital is one of three (or four, in
some formulations) factors of production. The others are
land, labor and (in some versions) organization,
entrepreneurship, or management. 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, in contrast to "land," which refers to
naturally occurring resources such as geographical
locations and minerals.
Natural resources
There are 2 types of natural resources: Renewable and Nonrenewable.
 Natural resources include soil, timber, oil, minerals, and other
goods taken more or less from the Earth. Both extraction of the
basic resource and refining it into a purer, directly usable form,
(e.g., metals, refined oils) are generally considered natural-resource
activities.
 A nation's natural resources often determine its wealth in the world
economic system, and in determining its political influence.
 In recent years, the depletion of natural resources has become a
political and economic issue. This is of particular concern in
rainforest regions, which hold most of the Earth's natural
biodiversity. Conservation of natural resources is the major focus of
natural capitalism, environmentalism, the ecology movement, and
Green Parties. Some view this depletion as a major source of social
unrest and conflicts in developing nations.

LFS Question
 3-2-1
 List three renewable natural
resources.
 List two non-renewable natural
resources.
 Give one reason why natural
resources are running out.
Entrepreneur

An entrepreneur is a person who has possession over a
company, enterprise, or venture, and assumes
significant accountability for the inherent risks and the
outcome.
Trade Barriers
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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
Most trade barriers work on the same principle: the imposition of some
sort of cost on trade that raises the price of the traded products. If two or
more nations repeatedly use trade barriers against each other, then a
trade war results.
Economists generally agree that trade barriers are detrimental and
decrease overall economic efficiency, this can be explained by the theory
of comparative advantage.
Quotas
An import quota is a type of protectionist
trade restriction that sets a physical limit on
the quantity of a good that can be imported
into a country in a given period of time.
 For example, a country might limit sugar
imports to 50 tons per year. Quotas, like
other trade restrictions, are used to benefit
the producers of a good in a domestic
economy at the expense of all consumers of
the good in that economy.

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. For
example, a 50% tax on an imported machine
raises the price from $100 to $150. Without a
tariff, the local manufacturers could only charge
$100 for the same machine; now they can
charge $149 and make the sale.

Embargo
An embargo is the prohibition of trade
with a certain country, in order to isolate
it and to put its government into a
difficult internal situation, given that the
effects of the embargo are often able to
make its economy suffer from the
initiative.
 The embargo is usually used as a political
punishment for some previous disagreed
policies or acts, but its economic nature
frequently raises doubts about the real
interests that the prohibition serves.

Currency Exchange
Every country has a different kind of currency, or
monetary system. Some examples of African money
are the Egyptian pound, the South African rand, the
Nigerian naira, and Chad’s franc (many of these will
eventually be replaced by the African Union afro.
 An exchange rate is the price that one country’s
currency has compared to another country’s currency.
For example, one U.S. dollar is worth over one
hundred Nigerian naira. Without an exchange rate,
global trade would be impossible to conduct.
Exchange rates change daily. The changes are
based on factors like government stability and the
strength of a country’s market.
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Specialization
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Specialization encourages trade and
can be a positive factor in a country’s
economy. Specialization focuses on the
development and production of one
product or service.
Bibliography
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Everything You Need to Teach, The Middle East. InspirEd. 2000.
Georgia Department of Education. Types of government Worksheets for
Unit 2. 06/30/2007.
Grade Seven GPS. Georgia Department of Education. September 2, 2008.