Economic
Systems – Ch 2
Subtitle
Section 1 – Introduction to Economic Systems
• Economic system – the way society uses it
scarce resources to satisfy it people’s
unlimited wants.
• Activity – fill in chart of economies of the
world
3 Types of Economic Systems
Traditional
•
There are 3 basic
types of
economic
systems in the
world today,
although most
countries
practice a
combination or
“mixed”
economic model.
• Families, clans or tribes make decisions
• Goal is survival and all people are involved
Command
• Government decides what will be produced
and how
• Needs of the country are the priority
Market
• Economy based on individual choice
• Seek their own interest and benefit others
Advantages and Disadvantages to Traditional
Economy
Advantages
•
•
Answers 3 economic questions
clearly
Methods of production don’t
change
•
System of distribution is based on
custom
•
Little disagreement about goals
Disadvantages
•
Resist change so less productive
•
Prevent people from doing jobs
they want to do
•
No accumulation of wealth
•
Lower standard of living
Pressure to Change
• Traditional Economic Systems are under
pressure to change with increasing
globalization
• Many young people leaving traditional
economies and some adapting technology
in farming
Section 2 – Command Economies
• Command economies are centrally
planned, meaning the society’s leaders
make all decisions
Karl Marx
• Marx was a 19th century German philosophy,
historian and economist
• Identified struggle between the classes
• Predicted transfer of power to the public,
overthrow of private ownership
• All citizens would share wealth, wrote
Communist Manifesto and Das Kapital
Socialism
• System in which government owns all or
some factors of production
• Developed from Marx’s ideas
Command Economies today
• North Korea – focused heavily on military
buildup through 1990s.
• Food was so scarce, millions died from
hunger
Advantages and Disadvantages to
Command Economy
Advantages
Disadvantages
•
Seek to care for everyone
•
•
Sick and unproductive are cared
for
Little understanding of local
conditions
•
Workers have little motive to improve
productivity
•
Nation’s resources can be used to
produce things that may not sell
in a market economy (medicine,
etc)
•
No private property, so workers don’t
use resources wisely
•
Shortages due to lower prices and
high demand
•
Individual rights are subordinate to
needs of state
Section 3 – Market Economies
• 5 Freedoms in a Market Economy
1.
2.
3.
4.
5.
Freedom to own property
Freedom to earn a living
Freedom to buy and sell
Freedom to compete
Freedom to earn a profit
Group Activity
• Groups of 3-5 assigned “freedom” Groups
will read pg 49-51 and:
• Identify how/why that freedom is important
in a market economy
• What would happen if that feature did not
exist?
• Share your information with the class, each
student will fill in chart about freedoms and
what they mean.
Circular Flow in Market Economies
• Visualizes how all interactions occur in a
market economy
• All goods and services are exchanged
between households, businesses and
product and factor markets.
• Page 53 circular flow model questions
Advantages and Disadvantages to
Market Economy
Advantages
Disadvantages
• No mechanism for providing
public goods and services
(defense)
•
Economic and political
freedom
•
Freer political process and
open elections
•
Cannot provide security to old
and sick
•
Profit
•
•
Better knowledge of resources
Unequal distribution of wealth,
unequal opportunities
•
Low wages, focus on profit
•
Pollution and other hazards
•
Greater productivity
Section 4 – Modern Economies in a Global Age
• Mixed Economy – elements of
traditional, command and market
• U.S. has a mixed economy. What
elements of the U.S. economy are
command? What aspects are market?
Trends in Modern Economies
• Nationalize – change from private to public
ownership
•
May think the U.S. should nationalize healthcare –
what do you think?
• Privatize – change from public to private
ownership
•
Many think the U.S. should privatize social security –
what do you think?
Activity
• On a separate piece of paper, write
arguments FOR or AGAINST
government run healthcare. Then make
arguments FOR or AGAINST privatizing
social security. (we will look at some
facts!)
Global Economy
•
Economic interactions that cross international boundaries.
•
Write a list of things you are using today (shirt, pencil,
backpack, etc)
•
Class will share responses to see where products are made.
•
Answer question – why do you think so many products are
made outside the U.S? Do you agree or disagree with
“globalization”? Why?