Name: ___________
May 2014
Period: ______
Using the Wordle above write as many sentences as you can think of to describe economics.
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The 3 Key Economic Questions every Society must answer:
As we have been learning, everyone is forced to deal with scarcity. We, as individuals, are forced to deal with it.
We, as families, are forced to deal with it. And we, as societies, as countries, are forced to deal with it. The way
we, as individuals, face it is through the choices we make. Since all of us make different individual choices, it
stands to reason that we all use different methods, or reasoning, to arrive at those choices. Different societies &
countries also use different methods to arrive at their choices. Because of scarcity (not enough to go around
because of LIMITED resources), every nation is faced with
“The 3 Key Economic Questions Every Society Must Ask:…
●
What –goods & services should be produced?
“What to produce?” is an allocation question. All economic systems must determine how
to allocate productive resources in the form of land (natural resources/raw materials),
labor (work for which we earn pay) and capital (human - education & job training)
(physical – buildings, equipment & tools).
●
Who – consumes the goods & services produced in society?
“For whom?” is a public choice question. All economic systems must determine which
goods and services will be available for public use and which for private use.
●
How – should goods & services be produced?
“How to produce?” is an efficiency (the ability to do something or produce something without
wasting materials, time, or energy ) question. All economic systems must determine how
goods and services will be produced.
In Column 1 list the three questions that each society must answer. In column 2 explain
the question that must be answered.
Column #1
Column #2
123-
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Define scarcity:
Define efficiency:
To know how different countries respond to the 3 Key Economic questions we first need to
define economics. Economics is the science that deals with the ways in which goods and
services are produced transported, sold, and used in a country. How a country determines this
is based on available resources and their cultural values. Countries must decide how they are
going to use their limited resources to produce the unlimited wants of their citizens. This is
known as the allocation (setting aside for a specific purpose) of limited resources in order to
satisfy unlimited wants and needs.
Define the word allocate: ______________________________________________________________
What do societies need to allocate and WHY do they have to allocate? ________________
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An economic system is primarily characterized by the way the country, or society, answers the
basic three economic questions: What to produce, Who gets it and How will it be produced?.
Two real-world economic systems that differ greatly are capitalism and communism. Capitalism
can be described as a Market Economy. Capitalism is an economic system in which ownership
and control is largely in private hands (businesses and households), as opposed to public hands
(government)-like it is in communism. One of the key concepts that capitalism values is private
property rights.
Communism, in contrast, is an economic system in which ownership and control
predominately rests with government. Socialism is a third noted economic system that borrows
institutions from both capitalism and communism.
What type of economy is capitalism? ________________________________________
What type of economy is communism? _______________________________________
Who has control of production in a…
Market Economy? _____________________________________________________
Command Economy? ____________________________________________________
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Bead Game Debriefing
Read each statement to the left and place a check under the corresponding type of
economic system.
Traditional
Command
Market
The government told
us what to make.
Individuals chose
their jobs.
Customs dictated
jobs.
Produced for the
highest bidder.
Government decides
what is needed.
Most stressful.
Competition!
Motivated through
social gain.
Least stressful.
Culture directed jobs.
Produced for those
who were declared in
need.
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Types of Economic Systems
There are different types of economic systems that answer the three questions
differently and they can be categorized according to who makes most of the decisions in the
economy. Most economies can generally be categorized as one of three kinds:
A traditional economy is defined by three characteristics:
1) It is based on agriculture, fishing, hunting, gathering or some combination
of the above.
2) It is guided by traditions.
3) It may barter goods/services instead of using money as a means of
exchange.
This type of economy relies on traditions and customs to determine what is
produced and how it is produced. Individuals are not worried about making a profit
and therefore, do not invest in the latest technology. They do what they’ve always
done. For these reasons, people who live in a traditional economy appear to be living
in poverty, even if their daily needs are being met.
Most traditional economies operate in emerging markets (coming into existence;
just beginning), or Third World countries. They are usually located in Africa, Asia,
Latin America and the Middle East. However, pockets of traditional economies can
be found throughout the world. Examples we have studied include Togo, Africa and
Mongolia.
In the box below create your own WORDLE to describe a Traditional Economy.
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A command economy is where economic decisions are planned out in detail by the central
government authority. The plan is implemented (carried out) through laws, regulations and
directives. Businesses follow production and hiring commands instead of individually and
freely responding to the laws of supply and demand. Central planners seek to replace the
forces that operate in a free market economy, and the customs that guide a traditional
economy, to attain specific societal goals.
In theory, communism is an economic system based on: (1) a classless society, (2) common
ownership of resources, (3) government ownership, and (4) income distributed according
to needs. As practiced in the real world, communism is an economic system based on (1)
government ownership--government ownership and control of most resources and the
means of production and (2) central planning--excruciatingly detailed and comprehensive
resource allocation decision making by the central government.
Under real world communism, governments undertake the vast majority of the resource
allocation decisions, with few decisions undertaken by individuals. The former Soviet
Union was the primary example of real world communism before if disbanded in the late
1980s. China, Cuba, and a scattering of African nations continue to operate under various
forms of communism.
Characteristics of a Command Economy
A modern centrally planned economy can be identified by the following five
characteristics:
1. The government creates a central economic plan for all sectors and regions of the
country. The goals are to generate (create) economic growth, increase production
efficiency and best utilize scarce resources. For the most part, a command economy
needs a political system that is also centrally planned.
2. The government allocates all resources according to the central plan. The goal is to use
the nation's capital, labor and natural resources in the most effective way possible.
3. The central plan sets the priorities for production of all goods and services. The goal is
to supply enough food, housing and other basics to meet the needs of everyone in the
country. In addition, it may have other priorities, such as mobilizing for war or increasing
the nation's economic growth.
4. The government owns a monopoly (only one owner) business in industries deemed
(considered) important to the goals of the economy. This usually includes finance,
utilities, and automotive. There is no competition in these industries.
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5. The government creates the laws that regulate economic activity. These include
regulations, directives and wage/price controls to implement the central plan.
Examples include the former Soviet Union and current Cuba.
In the box to
the left,
create a
WORDLE to
describe a
Command
Economy.
Write 10 word summaries for
each of the five (5)
characteristics of a Command
Economy. Be prepared to
share!
Capitalism is undoubtedly at the top of any list of economic systems operating in the
modern world. This system is based on: (1) private property--private ownership of resources
and the means of production, (2) individual liberty--relative freedom on the part of the
resource owners to use their resources as they see fit, and (3) competitive markets--a system
of relatively competitive markets.
Under capitalism, governments establish the basic rules of the game but the vast
majority of resource allocation decisions are undertaken (made) by individuals, as either
consumers or producers. The United States is one of the more noted examples of capitalism.
However, most modern industrialized economies of Europe, Asia, North America, and South
Resources
that can be
used to bring
in a large
profit are
allocated for
that good or
service that
brings in the
profit.
America operate under capitalism.
A market economy is an economic system in which prices are based on competition
among private businesses and not controlled by a government. It relies on prices
to allocate goods, services, and productive resources. That means that production
of goods and services are determined by the laws of supply and demand. Producers
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sell their goods and services at the highest possible price that consumers are
willing and able to pay. Workers also try to get the most pay for their skills.
Characteristics of a Market Economy
1) Private Property-Most goods and services are privately owned. This allows
business owners to buy, sell, lease or rent their property. Private property
gives them the right to profit from ownership.
2) Freedom of Choice- Owners, businesses, consumers and workers are free to
produce, sell and purchase goods and services in a free market. The only thing
that may stop them is the price they are willing to pay for or sell the item and
the amount of capital (money) they may have.
3) Competition- Competition for goods and services brings prices down and ensures
that they are provided efficiently. When demand increases prices goes up.
When producers see that demand is higher they will begin producing more- this
will add to the supply. An increase in supply will lower the price and only the
best producers will be able to continue producing. This applies to jobs as well as
consumers.
4) Limited Government- the role of government is to ensure that the markets are
open and working. The government watches to make sure no one is unfairly
manipulating those markets and that all information is distributed evenly. The
term laissez-faire (meaning keep the government out of the economy) was
coined by Adam Smith a famous economist.
Examples include the United States and Great Britain.
Create a WORDLE to describe a Market Economy in the box below.
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So, how do different economic systems respond to the three basic economic questions?
In a market economy, most of the decisions in the economy about what to produce, how to
produce it and who receives it are made by ___________ and firms.
In a command economy, __________ officials make most of the decisions in the economy
about what to produce, how to produce it and who receives it.
In a traditional economy the decisions are made according to ______________ &
__________.
A Mixed System incorporates elements of both command and market systems in determining
answers to the three questions. Mixed economies with strong market components also include a
public goods and services sector, just as command economies like Cuba include a private goods
and services sector.
Traditional
Traditional:
Market
How does each economy
answer the three
questions?
Market:
Command
Command:
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Political Cartoons
What type of economic system is being described in the cartoon above? _________________
How do you know? _________________________________________________________
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How is this cartoon showing the differences
between a Command Economy (Communism) and a
Market Economy (Capitalism)?
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Advantages and Disadvantages of the Three Most Common Economies in the World
Directions: Read the information below and complete the chart on the next pages.
In the world of today there are three major types of economies. Traditional economies are
dictated by tradition, customs, and, to a large extent, religion. As time goes on this type of
economy is becoming more and more scarce. Command economies, such as the former Soviet
Union, North Korea, and Cuba, have a central government that controls just about everything in
the society.
The third and final major economy is the market economy. This is a mostly free economy, where
the central government is weak and the businesses do as they please to make a profit. Each of
these economies has many positive and negative aspects.
Traditional Economy
One of the few advantages existing in a traditional economy is that
the roles of individuals are clearly defined. Every member of the
society knows exactly what they are to do and most don’t have any
complaints about it. There are also many disadvantages to this type
of society. These societies are often very slow to change and when
new technologies are introduced, these ideas and techniques are
discouraged.
Command Economy
Command economies have many advantages to it. One advantage is that equality is focused on.
The government tries to eliminate all private property and distribute its good equally. If done
correctly no one is in poverty and no one is wealthier than another. Social services are also
emphasized in this type of economy. The
government will provide equal health care,
education opportunities, and make sure all people
are fed.
A third advantage to this type of economy is that
it is capable of rapid change for major problems.
The government owns the companies, so if
production needs need to be shifted into a
different area, the government is capable of
doing it rather quickly.
A final major advantage of command economies is that they are very stable. Command
economies will never have sudden depressions. Although command economies may seem like a
utopian form of economics, they also have many disadvantages. In command economies there is
very little freedom. The individual usually doesn’t have the opportunity to decide what they
want to do for a career, and they have no control over the goods they receive. Another major
problem is that there is little reason for innovations, hard work, or quality of the work.
Since no one makes more money than everyone else, the people feel like there is no reason to
work hard. A third disadvantage is that there is little focus on consumer wants. Finally, when it
comes to minor day-to-day changes, the government has a hard time coping with them.
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Market Economies
In recent years, market economies have become more and more popular. Three major examples
of market economies are The United States, Japan, and France. One major advantage is that
market economies can adjust to change easily. If there is a demand for one thing, companies
have the ability to change what they produce instead of having to go through too much
government protocol first. Rational self interest in market economies are also encouraged.
People have the ability to make as much money as they can and do what is in their best interest.
Another positive to market economies is that the government tries to stay out of the way of
businesses. Although the government sets certain
standards businesses must follow, for the most part
businesses can do as they please, allowing them to
produce what they want, how they want. A fourth
advantage to the market economy is that there is a
great variety of goods and services for consumers. If
there is a demand for a good or service, the demand will
almost always be met in a market economy.
Although there are a lot of positives to market
economies, there are also many negatives that go along with it too. One major problem with this
type of economy is that it doesn’t always provide the basic needs to everyone in the society.
The weak, sick, disabled, and old sometimes have trouble providing for themselves and often slip
into poverty.
Another problem is that it becomes hard for a government with so many private businesses to
provide adequate defense, education, and health care to its people. A third disadvantage to this
type of economy is that there is uncertainty in the business world. One company could easily be
forced out of business causing all of its employees to become unemployed and lose their means
of income.
The final major disadvantage is that occasionally there are market failures. This can cause some
companies to become way to powerful and become a monopoly. If the government doesn’t step
in, the monopoly can take advantage of the consumers and charge ridiculously high prices.
Conclusion
Each of these types of economies has its own unique positives and negatives. It may seem like
one economic system is better than another, but it all depends on what the viewer deems
important.
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Advantages and Disadvantages of the Three Most Common Economies in the World
Economic System
Advantages
Disadvantages
Traditional
Command
Market
Think.Pair.Share.
Which economic system do you feel is the best? Explain your answer.
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