Economic Systems
I.
What does it mean to
produce?
Introduction to Economics:
A. Economics - the study of production and consumption of goods
and services
B. Types of Resources:
1) Human - the amount of able workers
What does it mean to
consume?
2) Natural - the amount of available materials in the area
(Examples: wood, oil, water)
3) Capital - The amount of available money and
technology/machinery
What is an example
of interdependence?
C.
Results of resources becoming scarce:
1) Human shortages - can increase the cost of labor
2) Natural resource shortages - can lead to war; or
interdependence- relying on other nations for help
3) Capital shortages - may force people to go bankrupt
(people/businesses go out of business)
What is an example
an unlimited need
that has limited
resources?
D.
Problem of scarcity: Our wants and needs are unlimited,
while our resources are limited. Therefore choices must be
made.
E.
What is an example
of a product that has
a high demand? Is
the price expensive?
Start your own
business:
Opportunity Cost: Every choice has a cost: money, resources,
time, energy, effort, etc.
F.
Supply and Demand
1.
Supply Shortages - of a material or labor leads to
increase in prices (or wages)
What product will
you produce?
2.
Supply Surpluses - of a material or labor leads to a
decrease in prices (or wages)
3.
How will it be
produced?
Increase in DEMAND - for a material leads to higher
prices
4.
Who are you making
it for?
Decrease in DEMAND - for a material leads to lower
prices.
G.
The three basic economic questions
1.
What will be produced? - what product or service will
be manufactured or provided?
2.
How will it be produced? – How will it be
manufactured or provided?
3.
For whom will it be produced? - What market are you
selling to?
What problems do
barter systems face?
II. Types of Economic Systems:
A.
What are the
advantages of the
money system
B.
C.
What resources are
necessary for
survival?
Earliest Economic Systems used the barter system
1.
Barter System - Goods/services of equal value were
traded
2.
Money Systems - not yet invented
Hunter/gatherer - people that had to rely on nature to
survive.
1.
Nomads - members of a group of people with no fixed
home, who traveled constantly to find food and water
because of limited resources
2.
Small populations – Human populations were small
(25-100 people) due to scarcity of food
Traditional economy - economy based on customs and past
practices.
1.
Agrarian societies - developed as the human
population grew a more sophisticated economy
2.
Money System - Societies transitioned from a barter
system to the use of Money as a ‘medium of
exchange’
3.
Agrarian - a society based on farming. Manufacturing
is NOT done on a large scale.
a.
D.
What’s produced –
basic needs
How’s is it producedself-sufficiency and
feudal obligations
Barter System used as farmers traded their
extra crops or livestock for products or
services they required
Manorialism - the economic portion of feudalism during
the Middle Ages (500 – 1400 CE) (develops out of the
necessity of survival)
1.
Manorialism - Warfare made trade almost impossible,
so the manor produced nearly everything that was
needed.
2.
For whom? –
everyone on the
manor
Self-sufficient - Manors produced everything for
surviving (food and clothes from crops and animals)
3.
Fief - Each manor included pastures for livestock, fields
for crops, forest areas, and a village where the peasants
lived
4.
Feudal Obligations - Nobles provided protection for the
peasants and serfs. In return for the lord’s protection,
the peasants provided various services for the lord
1.
Peasant Responsibilities:
a.
Farm
b.
Repaired roads and bridges
c.
Provide services as payment – Example:
If peasants used the Lord’s oven to bake
bread, peasant must leave a loaf or two as
payment.
d.
Blacksmiths, carpenters, shoemakers,
miller and vintner all lived in this setting.
E.
Why do people get
loans from banks
today?
The Commercial Revolution - Time period after the Crusades
that brought new economic ideas and practices to Europe with
rise of capitalism (private ownership and capital investment)
1.
Capital Investment - Raising money was a problem for
overseas trading: costs of ships, crew, and goods was
extremely high
2.
Banks and Loans - Merchants started to turn toward
bankers for money – loans
3.
Partnerships - New methods of investing $$ came about,
as people joined forces to increase the flow of wealth and
to reduce the risks of business.
4.
Joint stock companies - Individual merchants who wanted
to invest in exploration often raised money by combining
their resources in organizations that sold stock, to enable
small investors to share in the profits. If loss occurred,
the investor only lost amount invested

Why must people be
careful about
obtaining loans?

a.
In mercantilism, what
equals power?

5.
In mercantilism, who
benefits?
Dutch East India Company - was a
powerful joint stock company. It had the
power to make war, seize foreign ships,
coin money, and establish colonies and
forts. (Part of the mercantile system)
Profit - drove this entire movement (Money made after
investment)

6.
F.
G.
What is a potential
problem with Laissez
faire economics?

May be
chaotic
Middle Class – A new social class emerged through
new business opportunities (social mobility)
Mercantilism - Economic system in Europe during the 16th
and 18th centuries whose goal was to gain a favorable
balance of trade with its colonies to gain as much wealth as
possible. (wealth=power)
1.
Nations competed for new markets during the Age of
Exploration
2.
Wealth came from the raw materials collected from
colonies by mother country - Mother country benefits
3.
Colonies served as a source of raw materials, as well
as vital markets for finished goods
4.
Nations sought to create a favorable balance of trade
by exporting more goods than they imported!
Industrial Revolution – A major change in the way goods
were produced through the use of machines, capital, and
the centralization of work forces in factories.
1.
The origins - The Industrial Revolution began in
England during the 1750's
2.
Why did the Industrial Rev start in England?
3.
a.
Rich in natural resources – England was rich in
natural resources such as coal, iron
b.
Irregular Coastlines – British Isles were rich in
natural harbors which allowed for easy docking
of ships
c.
Infrastructure – England developed a capable
infrastructure that included canals, bridges and
roads (Railroads)
d.
Capital – England had large amounts of money
to invest (mercantile system)
e.
Strong Navy – England had an excellent navy
and was able to expanded its colonial empire
(increasing its ability to obtain natural resources
and reach foreign markets)
f.
Government - England had a stable and
supportive government (Make a lot of $$$)
g.
Enclosure Movement – This law forced small
farmers off land, and they moved to the cities
when they became homeless. The increase in
population of the cities created a surplus of
labor. (Urbanization, influence work conditions)
Adam Smith – The Wealth of Nations (1776) becomes the economic philosophy of the age.
(Supports free market and Capitalism)

Workers
rights are not
upheld
 Unsafe
working
conditions
In our current
economy, does the
government get
involved in economic
affairs? Explain.

4.
They regulate
business to
ensure
productivity
and to uphold
rights of
employees
a.
Philosophy - Businesses are much more
efficient in the use of resources than
governments
b.
Laissez faire - As a result, government should
not interfere or regulate business activity (hands
off) :
Results or Changes in Society a.
Industrialization - Large-scale industry or
factories (Mass production of goods) through
the use of steam powered machines.
b.
Efficiency and price - Machine From handmade
goods to machine made goods - faster &
cheaper process
c.
Factories - From production at home (domestic
system) to production in factories
d.
Mass Production - From producing small
amounts to mass production
e.
Technology - The increased use of science and
new forms of energy (steam power) to speed up
production. (New technology)
f.
Urbanization - People move from rural
(country) areas to urban area (city)
g.
Conditions for workers:
1.
Long hours (16-18 a day)
2.
Low pay (maybe $.03-.04 an hr.)
3.
Unsafe working conditions
4.
Child labor
5.
Overcrowding of cities - unsanitary
and
diseases
H.
Why do socialism
and Communism
have appeal to
people?

People want
equality
Socialism: The belief that the means of productioncapital, land, raw materials, and factories - should be
owned and controlled by society (Socialism = sharing)
1.
Not everyone in Europe agreed with the capitalist
way of thinking in the early 1800s. Some people
believed that ending the misery of workers required
eliminating capitalism completely
2.
Karl Marx - The Communist Manifesto (1848)
a.
Revolutions - Believed that economics was the
major force of change
Who are the “haves”
of today?
 Government
 Corporations
Who are the havenots” of today?
 Working class
(lower and
middle class)
I.
b.
Haves VS. the Have-Nots - The most important
aspect of the economic base was the division of
society into classes and conflict between classes
was inevitable
c.
Bourgeoisie (Owners) “Haves”- The social class
that controlled production and became the new
ruling class
d.
Proletariat – (Workers) “Have-Nots”- The
social class that Marx considered the “new”
slave or serf
e.
Communism - Marx’s socialist idea was
background for Communism. Marx believed
that the Proletariat would overthrow the
Bourgeoisie. This revolution would result in a
dictatorship that would produce in a classless
society through a command economy. He
believed that only through this form of
government, a socialist society would emerge.
Communism (Soviet Union) Russia
1.
Bolshevik Revolution - Lenin and the Bolsheviks
overthrew the Russian Czar in a bloody revolution in
1918, setting up the USSR.
2.
Nationalization - Government carried a policy that
brought all major industries under state control
3.
Stalin Totalitarian rule – Josef Stalin takes over the
USSR after Lenin and begins new economic policies.
4.
Command Economy - An economy that is planned
and controlled by a central administration
5.
Look at the chart
below. In considering
the current US
economy, answer the
following question.
Is the United States a
Market/Capitalist
economy or a
Command economy?
Explain your answer.

Five Year Plan –Stalin begins his five year plan to
increase the amount of industrialization in the USSR
under any circumstances (Set quotas, and those who
do not meet quotas are jailed or killed)
6.
Collectivization - a system of farming in which the
government seized the land from the farmers and
then used them to work the land
7.
Death to Millions - While initially appealing to the
common man, Communism proved to be a heavily
flawed political system, and Command Economies
were notoriously inefficient as an economic system
and often resulted in the deaths of millions through
executions and famine.
A Comparison of Market & Command Economies
Market Economy
Command Economy
Ownership
Private ownership of all
property and means of
production
Government control of all property
and means of production
Economic Controls
Little public control; private
citizens and business makes
decisions.
Government makes all economic
decisions
Market Forces
Supply and demand control
prices, promotes competition.
Government planning of entire
economy. Focuses on industrial goods
People make decisions
Democracies
Government
Totalitarian – Communist