What you’ll be doing today…

 Examining FOUR different kinds of economies and
how they answer the 5 Questions of Economics
(remember my song)
 Examining the Principles of Capitalism (Free Market
Economy)
 The Role of Government in Economics
 Where we are today in the world?
 Learning MORE NEW LANGUAGE
 Making connections and sense of this information
Making Connections…

 Remember our conversation about SYSTEMS- the
“isms”- this is where we dive in a little more
 Resources are limited we make choices we
evaluate trade offs/opp costs
 Businesses have to look at the factors of production,
the production process and make choices on how to
provide goods and services to consumers
 We as consumers make choices on those products
 Now we put all this into big picture
Types of Economies
Around the World

 Remember societies have to make choices on how
they can meets the NEEDS AND WANTS of the
members of their community
 Societies have to function under some sort of
SYSTEM
There are FOUR types we are going to look at
 Traditional Economy
 Command Economy
 Free Market Economy
 Mixed Economy
Traditional Economies
 Def: Economic
Questions answered by
custom/traditions
 Predominantly
Agricultural
 Developing or “3rd
World”
 Trade and barter
oriented
 Low Production and
income per capita (per
person)
 Traditional Market in
Ghana, Africa
Traditional Economies

 Thinking Things
through:
 What role are the
producers playing in
this model?
 What role does the
consumer play?
 Trade offs and
Opportunity costs
 Let me Help with you
your thinking:
 Producers “make”
goods that are only
available in their
immediate area
 Consumers have only
limited options of
products
 Depend highly on trade
to get “other” products
Command Economies
Def: Economic

questions answered by
the government
Very little economic
choice
No private ownership
Communism
Old Soviet Union, old
Communist China,
Cuba and North Korea
Karl Marx
19th century German
economist
Author of
“Communist
Manifesto” and “ Das
Kapital”
 Workers should
control economy and
distribute goods and
services to the people
Founder of
revolutionary
socialism and
communism
Command Economies

Thinking Things
through:
What role are the
producers playing
in this model?
What role does the
consumer play?
Trade offs and
Opportunity costs
 Lets put thoughts on
this screen:
 Take 3 mins to talk this
out with your Star
Wars Partner- Jedis you
talk first- empire you’ll
report out
Communism Falls
 Market reforms in China in the
mid 1970s.
 Fall of the Berlin Wall in 1989.
 Collapse of the Soviet Union
1991.
 Free Market Capitalism (w/
some Mixed Economies) the
only show in town.
 Fall of the Berlin Wall-"Fall of
Communism"
Free Market (Capitalist) Economies
Economic questions
answered by
producers and
consumers
Limited government
involvement
Private property
rights
Wide variety of
choices and products
U.S., Japan
Grocery Shopping
Free Market (Capitalist)
Economies

Thinking Things
through:
What role are the
producers playing
in this model?
What role does the
consumer play?
Trade offs and
Opportunity costs
 Lets put thoughts on
this screen:
 Take 3 mins to talk this
out with your Star
Wars Partner- Empire
you speak first- Jedis
you report out
Adam Smith
 18th century Scottish
economist
 Published “The Wealth of
Nations” in 1776
 Explained the workings
of the free market within
capitalist economies
 He provided the theory
of the Free Market
system
 Invisible hand of the
market
Issues in
the Free
Market
Adam Smith (cont.)

 Laissez-faire - Government stays out of business
practices “hands off” to let the market place
determine production, consumption and
distribution.
 Individual freedom and choice emphasized
The Free Market-A Visual

The Market
Place
This “meeting place” is called the
Free Market AKA Capitalism (System)
Principles of Capitalism
Competition –
Businesses must
compete to sell their
products to
consumers
How does
competition create
better options for
consumers?
Principles of Capitalism
Voluntary Exchange –
businesses and
consumers MUST be
free to buy or sell
what and when they
want.
Why is this important
to have in order for
products/goods to
“move” in the
market?
Principles of Capitalism
Private Property –
Individuals and
businesses MUST be
able to get the
benefits of owning
their OWN property.
Government doesn’t
control it.
Why wouldn’t you
want govt to have
control of property?
Principles of Capitalism
Consumer
Sovereignty –
consumers get to
make free choices
about what to buy
and this helps drive
production
How do you think
this can impact the
movement of goods
and services?
Principles of Capitalism
Profit Motive –
people want to make
or save $$$$. Their
“Self Interest”
motivates Capitalism.
What happens when the
market “crashes”?

 In 1929, the “Free Market” failed, crashed, broke
down, collapsed, etc
 Something had to be done in order to protect
people’s lives who were affected by the crash
 Therefore Govt involvement in the free market
increased passed regulations (laws) to create a
“Safety Net” to “catch” people if the market falls
again
Principles of Capitalism
 Social Safety Net –
“Mixed Economy” idea
that says the government
should NOT allow
people to suffer in
economic crisis (natural
part of Capitalism’s
“Business Cycle”), but
provide security instead
Examples of the Net:
Social Security,
Unemployment Welfare,
etc.
Mixed Economy/Socialism

 Government involvement
and ownership and control
of property, of decision
making, and companies.
 Government control of
business
 Social “safety net” for
people
 Socialism
 Common in Europe, Latin
America, and Africa
 The Nordic Model of
Mixed Economy
Issues with Mixed
Economies

 There are some trade offs and opportunity costs with
mixed economies and the Nordic Model
Tax Rates for the countries in the Nordic Model
 Denmark – 51%
 Finland- 30%
 Iceland- 46%
 Norway- 47%
 Sweden- 57%
 U.S. Tax Rates
Closing This Conversatoion

 This conversation described the basics of OUR
economic system.
 But wait, what were the issues described in the
economic recession of 2008?
 What were the Occupy Wall Street protesters asking
for?
 Take 3 mins with your SW partner to remember our
initial conversations about the Economy
 Out to the floor for discussion
Bringing the Two Worlds
Together

 For your exit slip, I want to see how your brains are
processing this “system” and put it next to the
original issues discussed at the start of Econ
 Take a look at ALL of the “Principles of Capitalism”
 Choose which ones have the potential to create the
problems we saw in the 2008 Economic Crisis
 Discuss how they can be a problem- you can refer
back to any previous information
 What are your thoughts right now on our economic
system described today? Your opinion, reactions, etc