Name:
ECONOMIC SYSTEMS
*****What is an accurate measure of economic development?
The ways in which people use their environment to meet their material needs is known
as an ECONOMY
Basic economic problem confronting all societies: Our wants and needs are
_________________ , while our resources are _______________.
Therefore_____________________________________.
“The best
things in
life are free”
True or
false? and
Why?
Every choice has a cost; in Money, Resources, Time, Energy/Effort, etc.
I.
Introduction to Economics:
A. Economics- the study of production and consumption of goods and services
1. The concept of Scarcity- __________________________________
a) Types of resources:
1) Human- the amount of able workers
2) Natural- the amount of available materials in the area
Examples: wood, oil, water
3) Capital- The amount of available money and machinery
b) Results from scarcity:
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 (oil)-MIDDLE EAST
3) Capital shortages may force people to go bankrupt
2. Consequences of limited resources relative to unlimited needs and wants
 Trees are a limited resource. Cutting down too many trees creates a
negative environmental impact.
-
Why do
“Sales”
work so
well?
3. Supply and Demand as the “invisible hand of economics”
 ____________________________ - shortage - of a material (or labor)
leads to ___________________ in prices (or wages)
 A surplus of a material - or labor - leads to a decrease in prices (or wages)
 Increased DEMAND for a material leads to higher prices
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If we as a
class were to
open a Pizza
shop of our
own, how
would we
answer the 3
basic
questions?
1:
 Decrease in DEMAND for a material leads to lower prices.
4. Basic Economic Concepts/Terms:
 Consumers- ____________________________ services and goods
 Goods - items of value
 Service - healthcare, education, legal advice
 Wants - things humans want to have, but are not necessary for survival
 Needs - items humans need in order to survive
 Resources - natural sources of wealth, become limited
 Demand - ____________________________________________ to
purchase at fair prices
 Supply - ______________________________________________
B. The three basic economic questions that every economy must answer:
1. _______ will be produced? - what product will be manufactured
2._______ will it be produced? - By hand, in a factory, by machine
3. __________will it be produced? - What market are you selling to
II. Types of Economic Systems
2:
A) Earliest Economic Systems used the barter system
(i) Goods of equal value traded __________________________
(ii) Money systems not yet invented
3:
2) Hunter/gatherer- people that had to rely on nature to survive, people were
often nomads- members of a group of people with no fixed home, who traveled
constantly to find food and water. Limited Resources
a) Small human populations made hunter gather economies possible
B) More Advanced Economic Systems
1) With the development of farming or agrarian societies, as the human population
grew a more sophisticated economy was developed
2) Societies transitioned from a barter system to the use of _______________
____________________________________________________________
3) Traditional economy: economic decisions are based on customs and past
practices
2
Is there a
problem
with the
Manoralism
model?
Under
Feudalism,
Land =
Power. In a
trading
economy,
what now
equals
power?
4) Agrarian -a society based on farming. No manufacturing on a large scale.
a) Barter System used. Farmers used their extra crops or livestock to trade
b) MANORALISM: the Agrarian economic system of the Middle Ages (700 –
1300 CE)
 During the Middle Ages, kings were not strong enough to stop
invasions. People needed protection. A new political system, called
feudalism developed. In feudal society, powerful lords owned large
pieces of land. They divided this land into estates. (FIEF).
1. Manoralism- Warfare made trade almost impossible, so the manor
produced nearly everything that was needed.
2. Manors were self-sufficient- Manors produced everything for surviving
(food and clothes from crops and animals)
3. Each manor included pastures for livestock, fields for crops, forest
areas, and a village where the peasants lived
4. ______________________________________________ for the
peasants and serfs. In return for the lord’s protection, the _____
_____________________________________________ for the lord
 If peasants used the Lord’s oven to bake bread, peasant must
leave a loaf or two as payment.
 repaired roads and bridges
Blacksmiths, carpenters, shoemakers, miller and vintner all lived in this setting.
C) Modern Economic Systems: Rise of Market Economies (Capitalism)
and a new powerful Middle Class
1) Trading economy- groups in the Mediterranean started to sail to other countries
and sell their goods $$ will be used, instead of bartering. (1300’s)
 Cultural Diffusion
 Tried to diversify- traded to gain new/different products
 Started to see colonies-a settlement of people outside their
homeland, linked with the parent country by trade.
* Mother country benefits economically Mercantilism(1500s)
2) COMMERCIAL REVOLUTION
a) By the l600s the nation had replaced the city and village as the basic
economic unit in Europe
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b) New methods of investing $$ came about, increasing the flow of wealth and
reducing risks known as COMMERCIAL REVOLUTION
(i) Nations competed for new markets during the Age of Exploration
c) Raising money was a problem for overseas trading: costs of ships, crew, and
goods was extremely high
(i) Merchants started to turn toward ____________ for money- loans
 _________________________________________________.
(ii) Individual merchants who wanted to invest in exploration often raised
money by combining their resources in:
 joint stock companies- organizations that sold stock, enabling
small investors to share in the profits.
(i) if loss occurred, the investor only lost amount invested
a. Dutch East India Company was a powerful joint stock co.
b. Had the power to make war, seize foreign ships, coin money,
and establish colonies and forts.
(iii)
Making a profit drove this entire movement
 Mercantilism- a state’s power depended on its wealth
________________________________________________ by
mother country- Mother country benefits
_______________________________________________,
as well as vital ___________for finished goods
 Nations sought to create a favorable balance of trade by
exporting more goods than they imported!!!!
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3) INDUSTRIAL REVOLUTION
a) A major change in the way people live, work and think began over 200 years
ago and in many ways is still going on today. This change is called the
Industrial Revolution, and it accomplished the replacement of human and
animal power with machines.
What is a
potential
problem
with Laissez
Faire?
b) _______________________________________________________ (1776)
becomes the economic philosophy of the age.
(i) Businesses are much more efficient in the use of resources than
governments
(ii) As a result, _________________________________ or regulate
business activity (hands off) : ___________________________
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c) The Industrial Revolution began in England during the 1750's
In our
current
economy,
does the
gov’t get
involved in
economic
affairs?
(i) Causes: Why did________________________________________?
 England was rich in ___________________________(coal, iron)
 England had natural harbors (______________________), and a
strong infrastructure (canals, bridges and roads)
 England had ____________________________(capital) to invest
 England had an excellent navy and was able to expanded its colonial
empire (increasing its ability to obtain natural resources and reach
foreign markets)
 England had a stable and supportive government
 Enclosure Movement- forced small farmers off land,
(i) Homeless, they moved to the cities, creating a surplus of labor.
d) Results or Changes in Society:
(i)
From handmade goods to ________________________ - faster &
cheaper process
(ii)
From production at home (domestic system) to
___________________________________________________
(iii)
From producing small amounts to ___________________
(iv)
The increased use of science and new forms of energy (steam
power) to speed up production. (New technology)
(v)
People move from rural (country) areas to urban area (city)
URBANIZATION
 CONDITIONS FOR WORKERS:
-Long hours (16-18 a day)
-Low pay (maybe $.03-.04 an hr.)
-Unsafe working conditions
-Child labor
-Overcrowding of cities- unsanitary and diseases
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Why do
socialism
and
Communism
have appeal
to people?
D) The Rise of Eastern European Economic Systems as a result of the
abuses of Capitalism
1) Socialism
a) 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
b) Socialism- __________________________________________ - capital,
land, raw materials, and factories - ________________ and controlled by
society, either directly or through___________________.
2) Command Economy- (COMMUNIST) Economic and political system where
government has total control over the production of goods and services.
a) ___________________________________________________ (1848)
(i) Believed that economics was the major force of change
(ii) The most important aspect of the economic base was the division of
society into classes
 Conflict between classes was inevitable
 Bourgeoisie - middle class They controlled production and became
the new ruling class
 ________________________________, the “new” slave or serf
(iii)
Marx’s socialist idea was background for Communism
Can
Communism
EVER work
effectively?
B. COMMUNISM (Soviet Union)
 Lenin and the Bolsheviks had introduced an economic Policy called
communism in 1918.
 Government carried a policy of________________________, in
which it brought ___________________________________
 Collectivization, a system of farming in which ___________
______________________and then used them to work the land
 While initially appealing to the common man, Communism proved
to be a heavily flawed political system, and _________
__________________________________________________.
6
Look at the
chart to the
right. In
considering
the current
US
economy,
we’re not a
Command
Economy,
but are we a
PURE
Market
Economy?
Explain
your answer.
A Comparison of Market & Command Economies
Market Economy
Command Economy
Ownership
Little public control
Economic Controls
Market Forces
Focuses on industrial goods
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