Take out Spiral
Notebook .
Week: Economic Systems
Day 1
What will we learn today?
Standard 12.1.5 The role of market economy in political and
personal liberty.
Standard 12.2.3 Explain the roles of property rights,
competition, and profit in a market economy.
Directions: Answer the following question in your Spiral. You need to write a one
paragraph response. There should be no talking during the Bellwork.
Are human beings
selfish? Or are
they caring? What
do you think?
Explain.
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CHAPTER 2 JIGSAW
Do Silent Reading First
Group1= 3 Economic Questions & what should be
produced pg 23
 Group2= How should goods & services be
produced pg 23
 Group3= Who consumes goods and service pg 24
 Group4= Economic Efficiency pg 25
 Group5= Economic Freedom pg 25
 Group6= Economic Security & Predictability pg 25
 Group7= Economic Equity pg 26
 Group8= Economic Growth and Innovation pg 26
 Group9= Economies and Values pg 26

Economic System

All societies have an economic
system or a way of providing for the
wants and needs of their people.
$ Economic System -function is to produce
and distribute goods and services to
consumers
Economic Systems

Countries must answer 3 key
economic questions: what should be
produced, how should it be produced
and who will consume these goods
and services.
Economic Systems

How a society answers these
questions depends on how much it
values economic goals of efficiency,
freedom, security, equity and growth.
$1. What goods or services should be produced?
How much resources should we devote to national
defense? Education? Public health?
$2. How should they be produced?
Should we have coal/oil/nuclear power? Should
teachers have 20 kids in a room or 50?
$3. Who consumes the goods and services?
How will society distribute income? Who will drive the
Lexus? Who will take the bus?
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Traditional economy: Relies on habit or custom. Little
innovation. Similar to family system. Boys follow dad’s
footsteps, girls follow mom. Examples: Hunting,
farming. Low standard of living.
Market economy: Decisions made by individuals
based on exchange, trade. (aka free markets,
capitalism)
$ Centrally planned economy: (aka command
economy) Government decides everything. Example:
communism.
Mixed economy: Market-based economy where
government plays a limited role. This is the United
States.
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Traditional Economy
Allocation of scarce resources, and
nearly all other economic activity,
stems from ritual, habit or custom.
 Individuals are not free to make own
decisions. Ex. Australian aborigines
 Advantage: everyone knows the role
they play
 Disadvantage: discourages new
ideas

Command Economy




A central authority (government) makes
most of the decisions.
People have little if any influence over
production. Ex. North Korea, Cuba and
former Soviet Union.
Advantage: can change direction
drastically in a short time. Ex. farming to
industrial
Disadvantage: Not designed to meet the
wants of consumers (Everyone gets only 1
In and Out burger.
Market Economy
People and firms make decisions
based on what best suits their
interest. Ex. USA, Canada and Great
Britain
 Advantage: overtime it can makes
changes in demand. Ex. Fast food to
health food
 Disadvantage: does not always
provide for basic needs of people. Ex.
Homeless people

Checking for understanding-C4U
Give one example of:
 Traditional economy
 Market economy
 Command economy
 Mixed economy

I will call on students for a response!
Chapter 2 Sec 2
Market: An arrangement that allows buyers and sellers to
exchange things.
$ Markets exist because it allows people to buy what
they need to consume and sell goods and services they
produce.
Specialization: The concentration of the productive
efforts of individuals and firms on a limited number of
activities.
Example: a mechanic specialized in fixing Japanese
cars.
Or: assembly line
e
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The Free Market



Free market is an economic system where
people do what’s best for them for personal
gain.
Consumers have an interest in looking for
lower prices.
Producers engage in a competition for
consumers money.
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Household: A person or group of people
living in the same residence.
Firm: Business; an organization that uses
resources to produce a product
Factor market: Market in which firms
purchase the factors of production (land,
labor, capital) from households
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Profit: The financial gain made in a transaction
Product market: The market in which household purchase the goods and
services that firms produce.
Adam Smith: Wrote The Wealth of Nations in 1776. Father of economics.
Said people are selfish, but that is okay because it works.
Adam Smith called the relationship between self interest and
competition the invisible hand.
$ Said government should stay out of economy (laissez faire = hands off)
Government should only be involved with education, health care and
transportation.
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However,$ Free Market Economy does need some
Government intervention to provide for things that the
market place does not address.
Example: national defense, roads and highways,
education, and health care
Self-interest: $ The motivating force behind the freemarket. One’s own personal gain.
Incentive: The hope of reward or the fear of punishment
that encourages people to act in a certain way.
Example: recycling. Buy things on sale. Employee of
the month. Sports championships. Getting an F
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Competition: The struggle among producers for the dollars
of consumers. This helps control firm’s selfishness. $
Purpose is to act as a regulating force in the marketplace
Without competition a business can monopolize a product
or service
Example: PS3 lowers price, Xbox does the same within a
week.
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Why is the free market system good?
1) It works. Producers make what consumers want,
when they want it. Prices are pretty good.
2) Freedom. Work where you want, buy what you want,
make what you want.
3) Growth is encouraged because innovation is
encouraged.
4) Wide variety of things get made because consumers
decide what gets made.
Consumer sovereignty: The power of consumers to
decide what gets produced.
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C4U
Why do markets exist?
 Is competition good for consumers or
business?
 What motivates the Free Market?

Centrally Planned Economies
Chapter 2 Sec 3


In command economies the government
controls the factors of production and
answers 3 economic questions of what,
how and for whom to produce for all of
society. Idea is that the government makes
all the choices that will benefit or is best
for the whole society, not just a few
individuals
Command economies often associated
with socialism, communism and
authoritarianism.
Centrally Planned Economy
Socialism- belief that democratic
means should be used to distribute
wealth evenly through a society
 Communism- belief that government
leaders should distribute wealth
evenly through a society.
 Authoritarianism (Fascism)- requiring
strict obedience to an authority, such
as a dictator. No individual freedoms.

Centrally Planned Economy
Problems
 Poor Quality of Goods= workers don’t care, as long as
they produce what they are told to produce
 Shortages of Goods and Services= need products are
not made
 Diminishing Production = workers don’t care, they don’t
get raises for producing more; no incentives
 Performance always falls short of ideals that the system
is built
 Can’t meet the needs of consumers needs and wants:
Government decides what is produced, not consumers
 The system does not reward innovation, is not flexible,
and sacrifices individual freedoms for the “good” of
whole society
Chapter 2 Phocabulary
Key Terms Pg 46
 Remember Word and definition on the
right and picture or illustration on the
left,( same as Cornell Notes )

•
Create a brochure that illustrates and defines The Free
Market Economy (left) and the Centrally Planned
Economy (right).
• Free Market Economy – pg. 28 – 32
• Write definition (pg. 28 – 32) on the inside flaps.
• Why is this economy good?
• What isn’t good about this economy?
•The
Centrally Planned Economy – pg. 34 - 38
• Write definition (pg. 34 – 38) on the inside flaps.
• Why is this economy good?
• What isn’t good about this economy?
IMPORTANT: Put everything in your own words! Make
it eye-catching. Must be in color.
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