Standard 1: Scarcity and Economic Reasoning
Objective: Understand why choices need to be
made and things given up
Essential Knowledge: Scarcity, Factors of
Production, Opportunity Cost, Types of
Economies, Production Possibilities Curve (PPC)
Warm-up in Notebook
Question:
 How much does a Big Mac cost?
Unit 1
Part 3
Types of Economies
&
Circular Flow Diagram
Types of Economies
 There are four types of Economies in the
world:




Market Economy
Command Economy
Traditional Economy
Mixed Economy
Market Economy
 If you went to a pawn shop to buy a watch,
how would you decide what price to pay for
it?
 Who sets the price of a product in a market
economy?
 The buyers and sellers agree to the price
 Pros: Competition allows for prices to
remain where they should be.
 Cons: What if only one business was selling
the product?
Command Economy
 Some countries in the world have total
control of their citizens’ lives. In this type
of economy, the government sets the
price for all goods and services.
 Pros: Everyone gets paid the same,
prices are the same for everyone.
 Cons: Why would you work harder in this
scenario if you knew there was no
incentive for it? Would you work
overtime?
Traditional Economy
 Notre Dame football is the best college
football team in the country. Even if you
don’t believe that, you can’t deny that
they some great traditions. One tradition
they have is having the players hit the
“Play Like a Champion Today” sign when
they leave the locker room. They have
done it since the first football game ever
played there and will continue to do it for
decades to come.
Traditional Economy
 A traditional economy is where the price
of goods and services stay the same
over time.
 There are a few 3rd world countries still
using this system. It usually involves
bartering.
 Bartering: Trading goods and services
for other goods and services.
 In a traditional economy, 1 goat may
equal 10 bushels of wheat. 10 years
from now what will 1 goat equal?
Mixed Economy
 Simple! An economy that combines two or
more of the other economies listed.
 What type of economy does the United
States have?
 You guessed correct! A mixed economy
 We have a mixture of market and command
economies.
 Most products are determined by
supply/demand (market economy) but some
products like milk have a set price determined
by the government.
Circular Flow Diagram:
Definitions
 Free Enterprise: The government lets
business decide what to charge for
products.
 Capitalism: Consumers (you and I) own
the factors of production.
Circular Flow Diagram:
How a Market Econ. Works
 1. Consumers sell their factors of
production (land, labor, & capital) to
entrepreneurs in exchange for money.
 2. Entrepreneurs gather the factors of
production and create a product.
 3. Entrepreneurs sell the finished product
to consumers and receive money (hopefully
profit).
 4. Consumers purchase products
 5. Cycle begins again.