Economic Systems – Ch 2Subtitle

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

• 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

Traditional

• Government decides what will be produced and how

• Needs of the country are the priority

Command

• Economy based on individual choice• Seek their own interest and benefit others

Market

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

• Seek to care for everyone

• Sick and unproductive are cared for

• Nation’s resources can be used to produce things that may not sell in a market economy (medicine, etc)

Disadvantages

• Little understanding of local conditions

• Workers have little motive to improve productivity

• 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 Economy1. Freedom to own property2. Freedom to earn a living3. Freedom to buy and sell4. Freedom to compete5. 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

• Economic and political freedom

• Freer political process and open elections

• Profit

• Better knowledge of resources

• Greater productivity

Disadvantages• No mechanism for providing

public goods and services (defense)

• Cannot provide security to old and sick

• Unequal distribution of wealth, unequal opportunities

• Low wages, focus on profit

• Pollution and other hazards

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?