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ECONOMIC SYSTEMS. ECONOMIC SYSTEMS. Is the way a society uses its scarce resources to satisfy its peoples unlimited wants. Traditional Economy.

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Economic systems1

Is the way a society uses its scarce resources to satisfy its peoples unlimited wants

Traditional economy
Traditional Economy

Where families, clans, or tribes make economic decisions based on customs & beliefs that have been handed down from generation to generation

Goal is survival

Everyone has a set role

Men are hunters & herders

Women cook, tend crops, raise children

Youngest help parents & learn skills

Good of group/society is greater than individual

Traditional economy1
Traditional Economy

  • They resist change

  • b/c they are based

  • on tradition & custom

  • Prevent people from

  • doing what they want

  • Lower standard of

  • living

  • Clearly answers

  • the 3 economic

  • questions

  • Little disagreement

  • over economic

  • goals & roles

Command economy
Command Economy

Government decides what goods and services will be produced, how they will be produced, and how they will be distributed

Government officials (Central planners) consider the resources & needsof the country; distribute those resources according to their judgment

Gov’t usually owns the means of production

Pros cons of command economies
Pros & Cons of Command Economies


Seek to provide for everyone

Leaders use the nation’s resources to produce items that may not make money in a market economy

Economic systems


Workers have little motive to work

Individual rights are under the needs of state

Central planners have little understanding of local conditions (great suffering of lower class)

Shortages are common

Why are consumer goods often in short supply in a command economy
Why are consumer goods often in short supply in a command economy?

Because they often set prices well below that of a market economy.

Why do these economies often fail
Why do these economies often fail economy??

Because of the human suffering that often goes hand in hand with command economies.

Economic systems

In a Communist economic system, the ____________________ owns the means of production.


Workers get their ________________ from the state, which tend to be low because the state is not worried about making a _________________, just ensuring the basic needs of its people

The government sets the prices of ___________________. They typically set them _________ so that the masses can afford them.





Economic systems

Due to low prices of goods and services and low worker productivity, ______________ of goods/services tend to low, therefore resulting in _______________________.

Due to _________ wages and getting paid regardless of worker _________________________, there is little _______________________ to work hard.






Economic systems

LOW productivity,

Also, due to _________ wages, there is little incentive for people to go on to ________________ for advanced degrees. This leads to a shortage of ________________, ______________, _______________, etc.

These shortages contribute to human suffering. There is a shortage of ___________, ___________________, toiletries, etc.







Market economy
Market Economy productivity,

Based on supply and demand, not government directives

Consumers drive the economy

Producers decide what goods/services they will offer

Economic systems

Government Involvement productivity,

Private Property

Fundamentals of a Market Economy

Voluntary Exchange



Consumer Sovereignty


Private property
Private Property productivity,

Buyers and sellers are free to own and use private property

Limited government involvement
Limited Government Involvement productivity,

  • Buyers and sellers must be free to operate with minimal government intervention

    • Laissez faire  “leave things alone”

    • Capitalism  economic system that is based on private ownership

Voluntary exchange in markets
Voluntary Exchange in Markets productivity,

  • When a buyer and seller agree to do business together, each believes that the benefits outweigh the costs

    • Based on an exchange of a product for money

    • Self-interest guides voluntary exchange

Profit productivity,

A financial gain from a business transaction

Sellers are free to attempt to maximize their profits

Competition productivity,


Sellers are free to attempt to get the business of others by offering the best deal

Consumer sovereignty
Consumer Sovereignty productivity,

Consumers are free to purchase what they want and to refuse products they do not want

Specialization productivity,

Buyers and sellers are able to concentrate their efforts in areas where they have an advantage

Circular flow model
Circular Flow Model productivity,

Page 53

Adam smith vs karl marx
Adam Smith vs. Karl Marx productivity,


1723 – 1790

The Wealth of Nations

Laying the foundation for modern economics

Alexander Hamilton

Karl Marx

Defenders/critics of capitalism

Nation would be wealthier w/free trade

“Invisible hand guides the market place”


1818 – 1883

The Communist Manifesto (1848)

Das Kapital

Laid the foundation for socialist economic theory

Russian Revolution 1917

Chinese Revolution 1949

Tension between worker & owner would lead to revolt & create a new classless society “Onion Theory”

Mixed economy
Mixed Economy productivity,

An economic system that has elements of traditional, command, and market economies

Most common

Trend 1 change in ownership
Trend 1: Change in Ownership productivity,

  • Nationalize

    • Means to change from private ownership to government or public ownership

  • Privatize

    • Means to change from government or public ownership to private ownership

Public sector
PUBLIC SECTOR productivity,

The public sector, sometimes referred to as the state or the government sector, is the part of the economy that deals with the production, ownership, delivery and allocation of goods and services (also known as PUBLIC GOODS) by the government, paid for by taxesfor citizens, whether national, state, or local

Private sector
PRIVATE SECTOR productivity,

The private sector is that part of the economy, sometimes referred to as the citizen sector, which is run by private individuals, usually as a means of enterprise for PROFIT, and is not controlled by the state.

You have the following to do
You Have the following to do! productivity,

Anyone not going to be here tomorrow, you have to take test today or you will get a zero.

Turn in Spirals #1 & #2

Turn in Globalization in you Life

Work on vocab and review sheet and if time permits Spiral #3

Trend 2 increasing global ties
Trend 2: Increasing Global Ties productivity,

  • Global Economy

    • All the economic interactions that cross international boundaries

  • Why the surge?

    • Opening up of the world’s markets to trade

    • Development of faster, safer, & cheaper transportation

    • Cross-border business partnerships

Russia from communism to capitalism
Russia: From Communism to Capitalism productivity,