Standards/Elements
SSEF4 The student will compare and contrast different economic systems and
explain how they answer the three basic economic questions of what to produce,
how to produce, and for whom to produce.
a. Compare command, market, and mixed economic systems with regard to private
ownership, profit motive, consumer sovereignty, competition, and government
regulation.
b. Evaluate how well each type of system answers the three economic questions and
meets the broad social and economic goals of freedom, security, equity, growth,
efficiency, and stability.
SSEF5 The student will describe the roles of government in a market economy.
a. Explain why government provides public goods and services, redistributes income,
protects property rights, and resolves market failures.
b. Give examples of government regulation and deregulation and their effects on
consumers and producers.
Essential Questions
What trade-offs are made when a nation chooses a market, mixed, or
command economic system?
•Why does the private sector lack incentives to produce certain types of goods and
services? (free-rider problem)
ECONOMIC SYSTEMS
Economic Systems
• The survival of any society depends on its
ability to provide food, clothing, and shelter
for its people
• There are three major kinds of economic
systems
– Traditional
– Command
– market
traditional
• Advantages
– Everyone knows which
role to play
– Little uncertainty over
WHAT or how to
produce
– Whom is also
determined by tradition
• Disadvantages
– Tends to discourage new
ideas and new ways of
doing things
– Lack of progress leads to
a lower standard of living
Slide 4 of 5
Command Economies
• Advantages
– It can change direction
drastically over a short
period of time
– Health and public services
are available to everyone
and little or no cost
• Disadvantages
– Not designed to meet wants
of consumers
– No incentive to work hard
– Requires a large bureaucracy
– Does not have the flexibility
to deal with day to day
problems
Slide 3 of 5
Market Economies
• Advantages
– It can adjust to change
– Individual freedom
– Relatively low
government
interference
– Decision making is
decentralized
• Disadvantages
– Does not provide the
basic needs of everyone
– Does not provide
enough of the services
that people value highly
– Uncertainty
Slide 2 of 5
____ 1. Which of the following is NOT a strength of a market economy?
a. It can adjust to change over time.
b. It gives producers and consumers freedom.
c.
It has decentralized decision making.
d. It supports all of its people equally.
_____ 2. Which of the following societies are examples of traditional economies?
a. United States, Japan, Germany
b. African Mbuti, Australian Aborigines
c.
North Korea, Cuba
d. South Africa, Egypt, Democratic Republic of the Congo
____ 3. Who would you most likely find participating in a market economy?
a. a government official deciding how much wheat to plant this season
b. a teenage girl deciding how to spend the extra money she earned working
overtime
c.
a hunter deciding where to hunt to provide his family with a meal that night
d. a worker deciding to leave his job early because the production quota has
been met
Answer to 1-3
• 1. D- Why?
• 2. B- Why?
• 3. B- Why?
Slide 5 of 5
More about Mixed Economies
• For instance, while China is considered a
command economy, it has rapidly begun to
incorporate many aspects of a market structure
into its economy. Likewise, while the United
States is considered to have one of the most
capitalistic economies in the world, the
government still intervenes in some markets.
Therefore, there is a third economic system
known as a mixed economy. This is simply a
way of naming an economy that incorporates
aspects from different economic systems.
A question for this standard might
look like this:
The nation of Welton needs to build a new dam to
control flooding near its Largest city. If Welton is a
pure market economy, then these new
improvements will MOST likely be left up to
A the government
B the individuals who are willing to pay for the new dam
C anyone who would benefit from the dam
D the owners of the property on which the dam would be
built
This question highlights a problem with a purely market
Based system, namely that public goods (like roads, bridges,
and dams) are difficult to build without a government that
sees to their production. Choice C is not the correct answer
because once a dam is built everyone benefits from it. While
choice D might seem like a correct answer, if a property
owner does not want the dam to be built, he or she is under
no obligation to build it. Ultimately, in a pure market
economy individuals must be willing to pay for public goods
(answer choice B), no matter who would benefit from the
final product.
____ 1. Which of the following is NOT a major economic and social goal of the United States?
a. economic interdependence c. economic growth
b. economic security
d. economic efficiency
____ 2. Economic goals are important because they
a. tell us WHAT and HOW to produce.
b. answer the FOR WHOM to produce question.
c. help people determine if an economic system meets their needs.
d. tell the government what kinds of regulations are needed.
____ 3. Which is an example of economic growth?
a. When a new ball bearing plant opens, 1,500 jobs are created.
b. The price of vegetables increases sharply in the spring.
c. An employer is fined for refusing to hire women to fill new job openings.
d. A man decides to quit working as a waiter and begin a career in marketing.
____ 4. Why is economic growth an important goal of the United States?
a. Americans have a strong sense of fairness.
b. Economic growth leads to price stability.
c. Americans believe that it is the only way to achieve economic equality.
d. Economic growth is needed to better satisfy the wants and needs of a growing
population.
1.
2.
3.
4.
B- Why?
C- Why?
A- Why?
D- Why?
____ 1. All of the following are characteristics of capitalism EXCEPT
a.
b.
private property rights.
economic freedom.
c.
d.
profit motive.
government control.
____ 2. What is another term for a modified private enterprise economy?
a.
mixed economy c.
command economy
b.
pure capitalism d.
free enterprise
____ 3. Why are entrepreneurs important in a free enterprise economy?
a.
Entrepreneurs do not pay taxes.
b.
Entrepreneurs help define the seven economic and social goals.
c.
Entrepreneurs pay high wages to their employees.
d.
Entrepreneurs start new businesses.
1. D- Why?
2. D- Why?
3. D- Why?