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Date:
Chp. 3: Economic Systems
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Notes
Chp. 3: Economic Systems
11
Objectives about Economic Systems
EPF.1 The student will demonstrate knowledge of basic economic concepts and structures by
e) comparing the characteristics of market, command, traditional, and mixed economies
f)
identifying Adam Smith and describing the characteristics of a market economy
Essential Understandings about Economic Systems
1.
2.
3.
4.
5.
A variety of methods can be used to allocate goods and services. People acting individually or collectively through
government choose which methods to use to allocate different kinds of goods and services.
People in all economies must answer three basic questions: What goods and services will be produced? How will
these goods and services be produced? Who will consume them?
National economies vary in the extent to which they rely on government directives (central planning) and signals
from private markets to allocate scarce goods, services, and productive resources.
Adam Smith, author of The Wealth of Nations, is often called the “father of economics.”
A market economy has certain basic characteristics including private ownership of resources, prices determined in
markets, competition among businesses, consumer sovereignty, profit motive, and limited government.
Essential Questions about Economic Systems
1.
2.
3.
4.
Notes
What are the three basic economics questions?
How does each type of economy answer the three basic economic questions?
What were some of Adam Smith’s economic theories?
What are the characteristics of a market economy, and why is each important?
Chp. 3: Economic Systems
12
Preview: Examine the political cartoons pictured. Then answer the questions below.
Cartoon A
Cartoon B
1.
Where are the people in each cartoon?
2.
Who or what decides what consumers get in Cartoon A?
3.
What advantages and disadvantages do you see represented in Cartoon A?
a.
a.
4.
Cartoon B?
Cartoon B?
Which store would you prefer to shop in, and why?
Notes
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13
Who Gets What? How Do Societies Decide?
I.
What are the three basic economic questions?
1.
What goods and services are to be produced?
2.
How are goods and services to be produced?
3.
Who will consume these goods and services?
II. Economic Goals Societies Must Address
1. Economic Freedom – the ability to make our own economic decisions without interference from the government
2. Efficient Economy – strives for full employment – when all who want to work can find jobs, because unemployed
workers are a wasted resource
3. Economic Equity – fair and just distribution of a society’s wealth What constitutes fair
4. Economic Growth – characterized by scientific and technological innovation in the US we have cars, internet,
antibiotics
5. Economic Security – providing less fortunate members of a society with necessities such as food, shelter and health
care Disagreements arise from what to provide and how
6. Economic Stability – goods and services we count on are there when we want them electricity, food, clothing
What to produce?
How to produce
For Whom to produce
Goals
Country Examples
The
government/central
authority decides.
The
government/central
authority decides.
The
government/central
authority decides.
Economic Equity
and Security
China, Vietnam,
Cuba, North Korea
Custom and
tradition dictate This
is what we’ve
always done
Custom and
tradition dictate
Mainly agricultural
and labor is divided
along gender lines
Custom and
tradition dictate
Economic Stability
and Security
Ethiopia, Somalia,
Afghanistan
Consumers decide
what will be
produced by casting
their “dollar votes.”
Producers choose
the most profitable
method of
production.
Goods and services
are consumed by
those who are
willing and able to
pay the market
price.
Economic Freedom
and Efficiency
United States*,
Canada, Australia,
Hong Kong, Ireland
Command
Traditional
Market
Notes
Chp. 3: Economic Systems
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
The United States is primarily a market economy; however, since it has some elements of government involvement (e.g.,
taxation and regulation) it is sometimes called a mixed economy. Hong Kong is the freest of the market economies in the
world.

Most of the world’s economies today are mixed economies and exist on a continuum between market and command.
Some lean toward market; others lean toward command.
Directions: Label the following countries on the map. You may abbreviate. Then, pick a color to represent command economies,
market economies, and traditional economies. Fill in the key below the map and color in the countries you labeled with the color that
represents their economic system.
(Canada, United States, Hong Kong, Ireland, Australia, Ethiopia, Somalia, Afghanistan, China, Vietnam, North Korea, Cuba)
Command Economies
Traditional Economies
Market Economies
III. Adam Smith and the Free Market
1.
Adam Smith believed that people, acting in their own self-interest, would work hard and produce what consumers
want as if directed by an invisible hand (the Invisible Hand Theory).
Notes
Chp. 3: Economic Systems
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2.
Smith argued for trade, saying it opened new markets where surplus goods could be sold and allowed for cheaper
goods to be imported.
3.
Smith believed that competition among businesses would keep prices in check.
4.
Smith believed there was a limited but important role for government to do things such as enforce contracts, grant
patents and copyrights, and provide public works such as roads.
5.
Smith observed that specialization and division of labor in a pin factory allowed workers to produce many times more
pins than if each worker had been working alone.
IV. Characteristics of Market Economies
1.
private ownership of resources, which provides incentives for the owners of resources to weigh the value of present
uses against the value of conserving the resources for future use
2.
competition among businesses, which tends to lower prices and raise quality
3.
prices determined in the marketplace through the interaction of supply and demand
4.
consumer sovereignty, the concept that consumers’ “dollar votes” tell businesses what to produce
5.
profit motive, an incentive for businesses to produce what consumers demand and to produce those goods and services
efficiently—keeping costs down—in hopes of earning greater profit
6.
limited government that acts as a referee—protecting consumers, workers, the environment, and competition in the
marketplace.
Notes
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Glossary Chp. 3
Directions: Fill in the definition for the term listed. Then, in the box on the right, you have to draw a picture OR
write the definition in your own words OR write a sentence using the word that demonstrates its meeting.
Economic Equity
.
Processing (Illustration, Summarization, or Sentence)
.
.
..
Traditional Economy
.
Processing (Illustration, Summarization, or Sentence)
.
.
..
Command Economy
.
Processing (Illustration, Summarization, or Sentence)
.
.
..
Market Economy
.
Processing (Illustration, Summarization, or Sentence)
.
.
..
Factor Payment
.
Processing (Illustration, Summarization, or Sentence)
.
.
..
Mixed Economy
.
Processing (Illustration, Summarization, or Sentence)
.
.
..
Free Enterprise System
.
Processing (Illustration, Summarization, or Sentence)
.
.
..
Notes
Chp. 3: Economic Systems
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Summary
DIRECTIONS: Choose only one of the following:
a) write a summary (25-75 words) of what you believe was the most important aspect of the notes/lecture
b) write what you believe to be the most interesting or memorable part of the notes/lecture (25-75 words)
c) draw something that symbolizes the notes/lecture to you (has to be different than your title page)
Notes
Chp. 3: Economic Systems
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