2 Economic Systems
BIG IDEAS = Responsibility, Choices, Changes, and Relationships
Essential Questions:
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How do societies provide for people in a traditional, command and market
economy?
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How do the characteristics of free enterprise capitalism work in the US?
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What goals affect the roles of government, consumers, and entrepreneurs in
the US economy?
* Remember you are responsible for answering one of these essential questions at the
end of this chapter as an assessment.
Why it matters
Understand: Economic systems govern WHAT goods and services to produce,
HOW to produce them and for WHOM to produce them. The US basic economic
decisions are made through the free interactions of individuals looking out for their
best interests.
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LEARNING GOALS:
1. Explain why every society has an economic system to allocate goods and
services.
2. Explain the advantages and disadvantages of all economic systems.
(T,C,M and C,S,C)
3. Describe the characteristics of free enterprise.
4. Describe the roles of government, consumers and entrepreneurs play and
the goals in free enterprise capitalism.
What you need to Do and Be Skilled at:
•
Read, comprehend, and summarize key information from text
collaboratively.
•
Identifying and providing examples of various economies with real world
applications. (T,C,M and C,S,C)
•
Illustrating and explaining economic systems and key concepts within the
world and a block buster movie.
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Enter Lesson #1 Vocabulary KNOW
9 Vocab words
• economic system • market
economy
• traditional
economy
• market
• command
economy
• socialism
• communism
• capitalism
• mixed economy
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Economic Systems
• All societies use an economic system to
provide for needs and wants of their people.
• Three major economic systems exist:
– Traditional
– Command
– Market
• Most economies combine all 3.
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Traditional Economies
Traditional economies use ritual, habit, or customs to answer
the basic questions of WHAT, HOW, and FOR WHOM to produce.
A traditional economy—use of scarce resources and economic
activity is based on habit or custom.
•
Advantages
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Disadvantages
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Command Economies
Command economies rely on a central authority to make most
of the economic decisions.
A central authority makes the major decisions in a command
economy.
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Advantages
–
–
•
Disadvantages
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–
–
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Market Economies
In a market economy, consumers and
businesses answer the questions of WHAT, HOW,
and FOR WHOM to produce.
A market economy allows people to make decisions
in their own best interest.
•Buyers and sellers exchange goods and services in
a market.
•Market economies are based on capitalism, which
means that the factors of production (C, E, L, L) are
privately owned.
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Market Economies (cont.)
• Advantages
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• Disadvantages
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Exit Lesson #1
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Enter Lesson #2
Mixed Economies
Most economies in the world feature some mix of
traditional, command, and market economies.
Most economies in the world are mixed economies.
•When political systems are considered with economic
systems, the picture gets more complicated.
•An example is socialism and its extreme,
communism.
•The type of political system in a mixed economy is less
important than the way basic economic decisions are
made.
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Mixed Economies (cont.)
• Advantages of a mixed economy
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• Disadvantages of a mixed economy
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Economic and Social Goals of the US Economy
Government, entrepreneurs, and consumers share different goals in the US
economy. (E5 EP)
•
Economic efficiency =
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Economic equity =
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Economic security =
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Economic growth =
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Economic freedom =
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Full employment =
•
Price stability =
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Economic and Social Goals In the United States, we share
several economic and social goals.
Do we lower taxes to let
Do we raise taxes
& use it to help new
businesses grow &
increase jobs?
Businesses want
more economic
growth & economic
efficiency
EXIT LESSON #2
business & individuals
make more money to buy
more goods & services?
Elderly & lower
income workers
want more economic
security & economic
equity
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Enter Lesson #3 Vocabulary KNOW
8 Vocab words
• free enterprise • profit
• voluntary
exchange
• profit motive
• competition
• mixed or
modified free
enterprise
economy
• private property
• consumer
rights
sovereignty
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American Free Enterprise Characteristics of
the US Economy
•
In many parts of the world, capitalism has become the
economic choice
•
Capitalism allows private citizens to own and use the factors
of production to generate profits
•
The U.S. economy is based on free enterprise
•
Capitalism and free enterprise are often used
interchangeably, although meanings are different.
– Capitalism stands for the private ownership of resources
– Free enterprise is the unhindered use of privately owned
resources to earn profits
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Characteristics of Free Enterprise Capitalism
The US economy has 5 major characteristics of a free
enterprise economy. (C, E, P, P, V)
• Competition =
• Economic freedom =
• Private property rights =
• Profit motive =
• Voluntary exchange =
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The Role of the Entrepreneur
Entrepreneurs are the driving force of the free enterprise system. They:
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–
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Entrepreneurs are both the spark plug & the catalyst of the free enterprise
economy.
•
Their search for profits leads to a chain of events that brings:
– New products
– Greater competition
– More production
– Higher quality
– Lower prices for consumers
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The Role of the Consumer
The economy in the United States adapts to consumers wants.
•
•
•
•
•
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The Role of the Government
The economic role of the U.S. government is decided by its citizens.
The role of government stems from the desires, goals, and aspirations of
its citizens.
•
Government has become a: __________, __________, __________,
and a __________
• In general, the role of government in the economy is justified whenever
_________________________________________.
• An unintended consequence of government’s role is the emergence of
the mixed or modified free enterprise economy.
• Some people prefer to have no government involvement in the
economy—which is not possible.
• Services like a national defense & a system of laws & justice cannot be
supplied by the private sector alone.
EXIT LESSON #3
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