Name: ____________________________________________________________________________________________
Economic Systems
SSEF3 The student will explain how specialization and voluntary exchange between buyers and sellers increase
the satisfaction of both parties.
a. Give examples of how individuals and businesses specialize.
b. Explain that both parties gain as a result of voluntary, non-fraudulent exchange.
SSEF4 The student will compare and contrast different economic systems and explain how they answer the three
basic economic questions of what to produce, how to produce, and for whom to produce.
a. Compare command, market, and mixed economic systems with regard to private ownership, profit motive,
consumer sovereignty, competition, and government regulation.
b. Evaluate how well each type of system answers the three economic questions and meets the broad social
and economic goals of freedom, security, equity, growth, efficiency, and stability.
SSEF5 The student will describe the roles of government in a market economy.
a. Explain why government provides public goods and services, redistributes income, protects property rights,
and resolves market failures.
b. Give examples of government regulation and deregulation and their effects on consumers and producers.
SSEF6 The student will explain how productivity, economic growth, and future standards of living are influenced
by investment in factories, machinery, new technology, and the health, education, and training of people.
a. Define productivity as the relationship of inputs to outputs.
b. Give illustrations of investment in equipment and technology and explain their relationship to economic
growth.
c. Give examples of how investment in education can lead to a higher standard of living.
1
Fundamental Economic Concepts
Main Topics: Economic Systems, Economic and Social Goals, Circular Flow Model, American Free Enterprise
Economic Systems
 Economic system – method used by society to allocate/_____________________________ the scarce
resources, in order to _________________________________________________________________________
4 Economic Systems
3 Economic Questions
2
Directions: Fill in the table how many pieces of candy you received after each round.
Traditional
Market
Command
Totals
"That's The Way We've Always Done It Ville"
1.
How did your group know what to produce, how to produce it and for whom to produce it for? _________________
_______________________________________________________________________________________________
2.
What was the motivation to produce? _______________________________________________________________
3.
Why could we argue that the methods of this system are inefficient by modern standards? _____________________
_______________________________________________________________________________________________
"We Do What We're Told Ville"
4.
How did your group know what to produce, how to produce it and for whom to produce it for? _________________
_______________________________________________________________________________________________
5.
How was your motivation to produce affected by this structure? __________________________________________
_______________________________________________________________________________________________
6.
How might this type of system affect the motivation of people to produce? _________________________________
_______________________________________________________________________________________________
"Make As Much As We Want Ville"
7.
How did your group know what to produce, how to produce it and for whom to produce it for? _________________
_______________________________________________________________________________________________
8.
Why was there more motivation to produce in this system? ______________________________________________
_______________________________________________________________________________________________
Reflection Questions
9.
Which system had the most incentive to work? Why? ___________________________________________________
_______________________________________________________________________________________________
10. Which system had the least incentive to work? Why? ___________________________________________________
_______________________________________________________________________________________________
11. Which system was the most inefficient by modern standards? Explain. _____________________________________
_______________________________________________________________________________________________
12. Which system would you like to live in, why? __________________________________________________________
_______________________________________________________________________________________________
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Economic Goals
Economic Goal
Summary
Example
1. Economic Freedom
Freedom to _____________________________
make choices with little interference by the
__________________________
2. Economic Efficiency
Making the most of
____________________________, using your
resources _______________ and
___________________
3. Economic Security
Government will provide a
__________________________ in times of
economic downturns
4. Economic
Predictability
5. Economic Equity
knowing that goods and services will
__________________________________________
_________________________ for
___________________________; being paid
according to your __________________________
6. Economic Growth
Improving the
__________________________________ from
year to year, improving
peoples’________________________
7. Economic Innovation
improving upon
_________________________________________
in order to improve
______________________________________
8. Additional Goals
_______________________________ goals for a
society,
4
Review Economic Goals
Situation
Economic Goal
1. Last week I willingly enrolled in college courses at Coastal. I
am so happy that I make my decisions about my future.
2. My uncle lost his job, but thankfully he is able to receive
unemployment checks.
3. Wal-Mart recently upgraded all of their registers to touch
screen monitors.
4. General Motors replaced all of their human workers with
robots in order to increase productivity.
5. As a result of the internet and technology, our economy
has experienced significant expansion over the past 30
years.
6. I can always expect Publix to have the food I like!
7. Hopefully in the future we will have full employment.
8. With every degree/skill I earn, I improve my ability to make
money
The Free Market
 Imagine that you are walking into Walmart. List 3 items that you could purchase and the departments that you
would find them in.
Item
Department
1.
2.
3.

Market –______________________ and ________________________ meet to exchange
______________________ and ________________________

Market Economy – economic decisions are made by ______________________ and
________________________ based on buying and selling of goods and services
o
All resources are _______________________________________
o
Any income derived from selling resources goes exclusively to owner
o
The government has a very ___________________________
5
Candy

Rating before trade
Rating after trade
Voluntary Exchange - is the act of buyers and sellers ______________________ and _______________________
engaging in market transactions where both parties ___________________________
Example:
o When I buy gasoline, I get energy for my car, the firm gets my money

Role of the Consumer

Consumer Sovereignty - in a free market, __________________________ determine the goods that are
produced; this makes them "_______________________" over production in an economy.
o
"_______________________" of the market; expressed through a __________________________________
for products when we make purchases. "_____________________________________________________"
o
When consumers buy products, they ______________________________ to producers
______________________________________ and ______________________________
Specialization

Specialization – the separation of _________________________________________________; people focus on a
______________________________________________________

Division of Labor – workers perform _________________________________ in order to operate
____________________________________________
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
Productivity (efficiency) – average amount of _______________________(good or service) per unit of
_______________________ (labor, machine, etc.)

o
Increased _______________________means to do ______________________________________
o
__________________________investments allow increased efficiency
Example: Mary looks over reports on four of her workers. Jack made 25 baskets in 5 hours. Walter made 36
baskets in 6 hours. Rudy made 40 baskets in 10 hours. Sam made 22 baskets in 4 hours. Jim made 50 baskets in
10 hours. Who has the greatest productivity? __________________________________________________

Jack 25/5 = ______ Baskets per hour

Walter 36/6 = ______ Baskets per hour

Rudy 40/10 = ______ Baskets per hour

Sam 22/4 = ______ Baskets per hour

Jim 50/10 = ______ Baskets per hour
_________________________ has the greatest productivity
7
Households and Firms

Household – ________________________________________________________________ living in a residence
o

Consumers - use the _____________________________________________ to satisfy wants and needs
Firm – _____________________________________________ that uses resources to
___________________________________________, which it then sells
o
Suppliers – transform “________________________” (F.O.P.) into “__________________________”
(consumer products)
Product and Factor Markets

Product Markets – _______________________________________________ interact; producers sell their
________________________________________________________

o
Households are ____________________________________ of goods and services
o
Firms are _____________________________________ of goods and services
Factor Markets – the markets where productive resources (F.O.P) are bought and sold
o
Firms are the________________________, households are the________________________
o
Labor - Firms (businesses) _________________________________________________________
o
Land - _________________________________________________________ land
o
Capital (financial) - Use money from ____________________________________________
(_______________________, investment, etc) to purchase _____________________________________
8
Circular Flow Model

Circular Flow Model - shows the flow of _________________________ and ____________________________
from and to _________________________and _______________________
5
8
3
7
6
13
1
2
14
10
11
4
12
9
9
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Circular Flow Practice Review
1. Fill in the blanks below what is represented by each letter below:
A.
B.
C.
D.
E.
F.
G.
H.
2.
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
In the Factor (Resource) Market:
a. What do firms bring to the market? _______________________________________________
b. What do most households bring to the market? ____________________________________________
3. In the Product Market:
a. What do firms bring to the market? _______________________________________________
b. What do most households bring to the market? ____________________________________________
4. Based on the above circular flow, what letter sequences represent the voluntary exchange of money for goods
and services? ________ to _________ and _________ to __________
5. Based on the above circular flow, what letter sequences represent the voluntary exchange of labor and wages?
________ to _________ and _________ to __________
6. What arrows represent the flow of money? ____________________________________
7. What arrows represent the flow of inputs and outputs? _______________________________
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Circular Flow of Economic Activity
*Fill out the circular flow of economic activity, using the following information:
Elisa and Marcella are sisters living in the same house in Glynn County. This afternoon, Elisa is hungry and decides to eat
at a restaurant known as Cilantros. As she enters Cilantros she notices that the restaurant offers a variety of goods, such
as tacos, burritos and fajitas. She decides to purchase a chicken fajita, which costs her $9.49. She returns home feeling
full and satisfied. Upon entering her house, she says goodbye to her sister Marcella who is leaving to apply for jobs.
Marcella is bound and determined to become a salesperson. The first job that she applies at is Books-a-Million, which is
looking to hire a number of positions. While applying for the job the manager shows her around the store. She notices
that there are many other factors involved in the production of the bookstore. There are stockers putting books on the
shelves, people selling coffee, and cashiers using registers to complete transactions. Books-a-Million ultimately hires
Marcella as a salesperson and after one week of work pays her $200 dollars for her service. As a result of her inquiring
mind, she asks the manager what additional expenses the store endures monthly. The manager tells her that they pay a
lease of $3000, $2200 in electric, and $400 in water to keep the store functioning. Elisa and Marcella both talk daily
about the freedoms they enjoy in the market economy.
1.
2.
3.
4.
When Cilantros sold the chicken fajita to Elisa, they completed a transaction in which market?______________
When Books-a-Million hired Marcela, they completed a transaction in which market?______________________
In the Circular Flow model, is the flow of money is represented by the ___________________arrows.
In the Circular Flow model, are the flow of goods and services represented by the ___________________arrows.
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13
Daily Assignment Questions
Economic Profile Adam Smith pgs. 33
1. What was Adam Smith’s ethnic and professional background? _________________________________________
2. What was the name of the book that he published; when was it published? ______________________________
3. What did Smith identify as the source of a nation’s wealth?___________________________________________
4. What did he assert about specialization and division of labor? _________________________________________
___________________________________________________________________________________________
5. What did he believe about the role of government in the economy? ____________________________________
___________________________________________________________________________________________
6. Define the French term Laissez Faire; why did Smith believe in Laissez-Faire economics? ____________________
___________________________________________________________________________________________
7. What is meant by his metaphor of the Invisible Hand? _______________________________________________
___________________________________________________________________________________________
8. How do both consumers and businesses benefit from this philosophy? __________________________________
___________________________________________________________________________________________
Role of the Government in a Market Economy

Government acts an __________________________, __________________________,
__________________________, and __________________________

Government has the responsibility to __________________________________________,
__________________________, __________________________, or __________________________
Informer
Protector
Regulator
Provider



•

Make sure that producers
Federal acts to preserve
Government regulation
Public sector- the
provide consumers with
competition, regulates
can have negative effects
part of the
_____________________
_______________________
on businesses and
economy that
_____________________
_______________________
consumers
involves
Consumers use govt.
_______________________
Negative effects:
_______________
information to protect

Though they do not control

1. ____________________
themselves from
it, they impose various
____________________
_____________________
restrictions on the private
____________________
_____________________
market
o
2. ____________________
_______________
______________
•
Private sector- the
part of the
Gas stations, must
____________________
economy that
_____________________
dispose of used
____________________
involves
_____________________
motor oil properly
and
o
3. ____________________
_______________
Zoning laws,
____________________
_______________
prevent
____________________
______________
homeowners from
____________________
running businesses
out of their homes
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Providing Public Goods and Services
•
Public Good/Service - A shared ____________________________ for which it would be impractical to make
consumers _____________________________and to exclude ___________________________________
•
_____________________________, _____________________________,
_____________________________, _____________________________,
_____________________________, _____________________________
Redistribution of Income

When the government _________________________________________________________________________

_____________________________, _____________________________, ________________________________
_____________________________, etc.
Market Failure
•
The market, ______________________, does not __________________________________
•
Externalities
Externalities
•
Negative Externality – _____________________ effects experienced by people that had no part in the
_____________________________ of a good or service
•
Cigarette smoke, chemical ___________________________, ______________________________and
property values, etc.
•
Positive Externality - Goods/services that generate ____________________________to many people, not just
those who ___________________________________________________________
•
Education, better ________________________________, medicine, etc.
Application Question
•
Write an example of a negative and positive externality that you have experienced ________________________
___________________________________________________________________________________________
•
What kind of government regulation could be used to eliminate your negative externality? _______________
___________________________________________________________________________________________
Command Economies

Command – ____________________________________________________________ the Factors of Production

Centrally Planned Economy – central government answers the
______________________________________________; ________________ to produce, ________________to
produce, and ________________to produce
o
Oppose _________________________, free market pricing, economic ___________________
15
Socialism and Communism

Karl Marx – German ___________________________________________ that studied
______________________________________ in Europe
o
Communist Manifesto – written by Marx and __________________________________________
became basis for modern-day __________________________________________
o
Thought capitalism would fail because it
__________________________________________________________
o
Believed in a ___________________________system, where all share in
_____________________________________
o
Socialism – distribution of __________________________________________ equally amongst society
o
Communism – political and economic system with ____________________________________________
o
Authoritarian Government – exact _________________________________________from their citizens;
do not allow __________________________________________
16
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Economic Goals and the 3 systems
Economic Goals
Market
Command
Economic Freedom
Economic Efficiency
Economic Security
Economic
Predictability
Economic Equity
Economic Growth
Economic Innovation
18
Tradition
Study Guide– Economic Systems, Goals and the Circular Flow Model
Answering the Three Economic Questions
1. An organized way of providing goods and services in society is known as an ________________________________
2. The Three Key Economic Questions are _____________________________________________________________
3. List the 8 economic goals ________________________________________________________________________
_____________________________________________________________________________________________
4. How are the three economic questions answered in a traditional economy? _______________________________
_____________________________________________________________________________________________
5. How are the three economic questions answered in a command economy? ________________________________
_____________________________________________________________________________________________
6. How are the three economic questions answered in a market economy? __________________________________
_____________________________________________________________________________________________
The Free Market
7. Buyers and sellers meet to exchange goods and services at a ____________________________________________
8. Individuals and Businesses own the factors of production in a ____________________________________
economy
9. Another name for free market is ___________________________, which indicates the ability to profit on the
F.O.P.
10. __________________________ and __________________________ interact in the product and factor markets.
11. What is the difference between an input and an output? _______________________________________________
_____________________________________________________________________________________________
12. ___________________________________ is the average amount of output per unit of input.
13. Mary looks over reports on four of her workers. Jack made 20 baskets in 5 hours. Walter made 30 baskets in 6
hours. Rudy made 100 baskets in 10 hours. Sam made 28 baskets in 4 hours. Jim made 10 baskets in 10 hours.
Who has the greatest productivity? ________________________
14. Goods and services are purchased by households/consumers in the ________________________________
market.
15. Productive resources (Factors of Production) are provided in the __________________________________
market.
16. ____________________________ was a Scottish Professor that wrote the ________________________________,
which became a cornerstone to modern-day market economic philosophy.
17. He believed the government should adopt a Laissez-Faire philosophy, which infers that the government should
_____________________________________________________________________________________________
18. He wrote about a metaphorical self-regulation of the marketplace, known as the
____________________________
19
Command Economies
19. ____________________________ was a German philosopher that studied economic systems in Europe, he wrote
the _______________________________________, which became the cornerstone for modern-day communist
nations.
20. What did he believe about capitalism?
______________________________________________________________
21. He was a supporter of ________________________________ and ________________________________, which
were terms that he used to describe the equal distribution of wealth and “no-class” economic system in society.
22. North Korea exhibits an ___________________________ style of governmental control, which commands strict
obedience from their citizens and does not allow individual freedom.
American Free Enterprise
23. Individuals’ right to choose your occupation and what to buy and firms’ right to hire or produce refers to the
_____________________________________ found in the United States.
24. The Fifth Amendment of the Constitution protects us from the federal or state governments taking our property
for their own use because of private _________________________________________.
25. The force that encourages people and organizations to improve their material well-being through the pursuit of
money or a better standard of living is ______________________________________.
26. When individuals willingly engage in a transaction where both parties benefit they have participated in a
______________________________________________.
27. ____________________________________________ is the rivalry among sellers to attract customers while
lowering costs. This leads to lower prices, more variety and quality of products.
28. The consumer is the most important force in the economy because they determine what is produced through
their purchases. The fact that the “customer is always right” is represented by the term
_____________________________
29. Briefly describe the role of the government in the U.S. economy _________________________________________
_____________________________________________________________________________________________
30. The _____________________________sector is the part of the economy that involves the transactions of the
government.
31. The _____________________________ sector is the part of the economy that involves the transactions of
individuals and businesses.
32. A _________________________________is someone who would not choose to pay for a certain good or service,
but who would get the benefits of it anyway if it was provided as a public good.
33. A __________________________________________ is an economic side effect of a good or service that
generates benefits or costs to someone other than the person deciding how much to produce or consume;
positive or negative.
34. Give an example of a positive externality ___________________________________________________________
35. Give an example of a negative externality __________________________________________________________
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Name ___________________________________________ Date __________________ Class Period __________
Free Market Video
1. What economist was mentioned in the beginning of the video?
2. What did he believe in?
3. Which country has been ranked number 1 in economic freedom in the last 16 years?
4. What is Hong Kong’s only major natural resource?
5. What country colonized Hong Kong, but allowed them to operate their own economy?
6. How much did Hong Kong’s GDP Per Capita increase since the 1950s?
7. How was this achieved?
8. What did Friedman attribute this growth to?
9. What famous professor first wrote about free markets?
10. What does voluntary association (exchange) mean?
11. What was Adam Smith’s metaphor for coinciding self-interests?
12. What did he mean when he said self-interest?
13. What does the market tell sellers?
14. What would happen to the price of tomatoes if all people wanted to buy tomatoes?
15. How would the high price affect producers of tomatoes?
16. What term does this “dollar vote” for tomatoes refer to?
17. What item did Friedman use to show the benefits of free trade?
18. What is the modern tool for communication used in the video?
19. What characteristics are similar for all wealthy nations?
23
North Korea
1.
How large is North Koreas army?
2. Who is the leader?
3. Who controls the media and economic freedom?
4. What type of doctor is interested in helping North Korea?
5. How do the North Korean’s view the United States?
6. Who is the author of the only books found in their room?
7. What happens when the photographer lies down to take the picture?
8. How long has North and South Korea been at odds?
9. What dangerous item is found along the border?
10. What killed up to 3 million people in the mid-nineties?
11. What do they use to communicate with the North Koreans when they don’t pick up the phone?
12. What pictures are found in the typical families’ home?
13. What happened when she asked if Kim Jong Il could do any wrong?
14. How many people can Number 22 camp hold?
15. Where do the patients direct their thankfulness?
16. What dangerous weapon does North Korea have?
24
Daily Tens:
1. What is the function of an economic system?
a. to make sure all people have equal access to goods
b. to organize and distribute scarce resources
c. to give all producers the same access to consumers
d. to make sure people are paid for their labor
2. You are an entrepreneur with an innovative idea for a new business. In which kind of economy would you have the
most opportunity to try to achieve success?
a. market economy
b. command economy
c. traditional economy
d. economy of scale
3. Fill in the blanks:
a. QB Peyton Manning’s high salary, vs. a cashier’s low salary, economic _________.
b. Moving from the typewriter to computer,
economic _________.
c. “Today, I know Chevron will have gas”, economic __________.
d. An individual receives unemployment checks, economic ___________.
e. Increasing the production of goods, services and jobs from year to year economic ________.
4 . In a market economy, how are the basic economic questions of what, how, and for whom to produce answered?
a. social customs and traditions
b. a combination of traditional and command economies
c. individuals (buyers) and firms (sellers) in the nation’s marketplace
d. central planners
5. A market economy has an advantage over a command economy in that the market economy
a. controls prices and wages
b. fixes incomes of consumers
c. limits the profits of large corporations
d. adjusts to consumer demands over time
6.
A. 4 to 2
B. 8 to 6
C. 2 to 5
D. 6 to 1
25
Essential Questions:
1. How does each of the economic systems answer the three economic questions?
a. ____________________________________________________________________________________
b. _____________________________________________________________________________________
c. _____________________________________________________________________________________
d. _____________________________________________________________________________________
2. What do the economic and social goals help us to understand?_______________________________________
___________________________________________________________________________________________
3. How does the Circular Flow model show a market economy?
a. ____________________________________________________________________________________
b. _____________________________________________________________________________________
Amazon Video
Economic Goals
Economic Freedom
Examples in the Video
Economic Efficiency
Economic Predictability
Economic Equity
Economic Growth
Economic Innovation
Additional Goals
26