Unit 1 – Economic Systems
-Study Guide Answer and Explain the following:
1. What are Consumers?
2. What do Producers do?
3. Explain the difference between a Need and a Want
4. What is Public Good?
5. What are Resources?
6. What are the 4 factors of production recourses and explain them?
7. What is Scarcity?
8. What are the 3 essential economic questions
9. What is Allocate?
10. Why we can’t satisfy all or desires?
11. What is Opportunity cost?
12. What is a trade-off?
13. What is production possibilities curve?
14. On the PPC what does mean to be, left, right and on the curve.
15. How does technology help an economy?
16. Why we need to have an economic system?
17. Explain a traditional economy
18. Explain a command economy
19. Explain a market economy
20. What is an industry?
21. Define Laissez-Faire
22. Explain what economy each of the following have: America, Canada,
Cuba, China
 Explain who Karl Marx, Adam Smith & John
Nash were and their economic philosophies.
What is Economics?
-What is Economics?- Economics is the study of how people choose to use________________________.
How society ___________________________________________________, consumption and distribution
of _____________________________________.
- Why we- Study Economics- It relates to ____________ aspect of our lives, from the decisions we ______________ as individuals or
families to the structures created by _________________________ and firms.
-Who Makes Economic Decisions?- Either as a consumer or producer _____________________________________________________:
 __________________________________: those who buy & use goods/services
 __________________________________: those who provide goods/services
a) Goods: _______________________________________________. Example: Medicine and Computer
1. __________________________________: equipment used in the production of other goods.
2. __________________________________: the finished products purchased.
b) Services: activities a _________________________ for another that consumers ______________.
Example: Doctor and Computer technician
-The Study of economics begins with the concept, we can’t have everything:
 _________________________ is to survive - Air, water, food and shelter.
 _________________________ live in comfort - Cars, jewelry and toys.
-Resource is defined as anything used to produce goods or services; ______________________________
-Factors of ProductionFactors of production describe the __________ that are used in the production of goods or services
 _________________________- items provided by nature. (Oil, coal, natural gas, water, dirt, and etc.)
 ____________________________- any paid human time and effort used in production
 ___________________________________- manmade equipment used to produce goods.
 ___________________________________- use land, labor, and capital to make goods and
services. The people who assume the risk involved in creating a new product or business.
-Scarcity Scarcity - Human ___________________________________________________________ limited
Resources available ___________________________________________________.
 This forces producers to make decisions of what to make or Allocate (_______________________ and
consumers what to buy or use.
 Tradeoffs - ________________________________________________________.(What to give up)
 Opportunity Cost - _______________________________________ up the next best thing in order to
_______________________________________ else (Value of What Sacrificed). Entrepreneurs have
an opportunity cost when they choose to make one product over another.
 Cost-benefit analysis – weighing the benefits of an action against its __________: time, money, effort.
-Production Possibility Curve A graph used to illustrate the impact of __________________ on an economy by showing the
_____________________________ of goods or services that can be __________________ limited
resources. It increases a company’s ________________________________.
 It shows the _____________________________________ of each production decision.
 The curve line on a PPC represents the Border or _____________________. Left of the curve is
_____________________ _because the economy is not using all of its resources to produce the
maximum amount of goods. This is called _______________________________
 Any point along the PPC border curve itself is __________________________ because the economy
is using all of its resources to produce the maximum amount of goods.
 Right of the curve, the level of production is _________________________, its exceeding productive
resource capacity. To achieve that point, the economy would have to expand in terms of new resources,
_______________________________________, or both.
-Summary-
Economic Systems
Economic Systems- is the way societies ____________________ goods and services to meet
the wants and needs of its _________________________.
- Three Economic Questions - To address scarcity, societies must answer three questions:
1) -What to Produce _________________________ decide what is most important to satisfy its wants and needs.
 What____________________ (land, labor, & capital) _________________________?
 What are ____________________________________________ of those decisions
2) -How to Produce it How do we ____________________________________________________________?
 Is there a more ____________________________________________________ them?
 What combinations of land labor & ________________________________ to produce?
3) -For whom to Produce What is the ________________{arrangement that allows buyers and sellers to trade} for it?
 Who will use ___________________________________________?
 Who can ___________________________________ the products?
- The 4 types of systems that address the 3 economic questions about production in different ways….
1) Traditional Economy
 Economic system in which _____________________________________, or tribes make economic
decisions based of habit, custom, and ritual.
 Relatively ______________________________________ , Strong families & religious beliefs.
 Generally agricultural economies.
 Low ______________________________________ and Little room for innovation.
 Most often _________________ is used, Goods and services are ______________, or traded.
2) Command Economy
•
•
•

Relies on _________________ or central planning committee make economic decisions
Individuals have __________________________ in economic planning and freedom of choice.
The government control or owns __________________________________.
Concentration of Production: can _____________ all of their production on _______ particular
industry as necessary.
 Socialism -_____________________________ Command System.
- A system in which the gov’t _____________________________; the rest are privately owned.
- The government owns the ________________________________, but other industries are
___________________ owned.
- Central Planners{members of the ________________________________} make decisions
for government-owned industries.
Example: ______________ and Sweden
- Socialism ____________________ in a democracy.
 Communism - ____________________ Command and a more extreme form of socialism.
- There is _________________________________ of property and little or no political freedom.
- All economic and political decisions are made by the______________________________
- It requires ________________________________________ to authority.
- It prevents individuals from ___________________________, which is against the Communist
principle that _______________________should be shared
Example: Cuba, _________________________, former Soviet Union and China
-Karl Marx- (1818-1883)
 He said that industrialisation had made the middle classes rich and powerful but had made the workers slaves.
 1848 - Wrote the book “________________________________”, introducing his form of Communism.
-Summary-
3) Market Economy
 A market system allows people to _______________________________________________ and
producers to make the goods they feel people will buy.
 Promotes free-enterprise or ___________________________
 Capitalism - name often given to describe this __________________________________ and sell
goods of one’s choice and the right to __________________________________ property.
 Individuals answer ___________________ questions.
 ________________________________________ use the market to exchange goods & money.
 Individuals & private businesses ________________________________________________.
-The Circular Flow Model*Circular Flow for the money*
.
 The circular flow model shows the movement of
____________________________________ through
the economy.
 The model represents the ______ key economic
decision makers —_____________________, which
are made up of individuals like you, and
__________________.
 Industries are a ___________________________
that do the same thing.
 Specialization leads to economic efficiency
 Encourages more _______________________ &
higher technology.
 The market is driven by _____________________
 Strong _____________________________________________- rivalry between companies.
 _______________________ encourage individuals & businesses to behave in a certain way.
 Businesses are _____________________________________ by profits/ financial gain.
Ex: ________________________________, Japan, Germany
-Adam Smith A Scottish economist in the 1700s - promoted free market economy.
 ___________________________ - written in 1776 describes how a Market system can flourish.
 Called for economic ______________________________- restricted government involvement.
 The Invisible Hand - ____________________ can drive the market, ultimately society benefits.
4) Mixed Economy ________________________the elements of Traditional, Command, and Market economies.
 The government has varying degrees of involvement:
a. Regulates________________________________________
b. Provides a ___________________________ net for those in need
 All _____________________________: Most tend to lean heavy towards one system.
- _____________________________: a modern day mathematician ~ won the Nobel Prize in 1994
* Subject of the movie A Beautiful Mind.
 Wrote the “Nash Equilibrium” - “Game Theory”
 Smith’s Invisible Hand theory was incomplete - individuals will plan & act based on what we believe
other people will do.
 The “Nash Equilibrium” states: individuals will act for their own self-interest & for the benefit of the
group. The outcome may not be the “best”, but you will be able to “stay in the game”.
-Summary-