Standards/Elements SSEF4 The student will compare and contrast different economic systems and explain how they answer the three basic economic questions of what to produce, how to produce, and for whom to produce. a. Compare command, market, and mixed economic systems with regard to private ownership, profit motive, consumer sovereignty, competition, and government regulation. b. Evaluate how well each type of system answers the three economic questions and meets the broad social and economic goals of freedom, security, equity, growth, efficiency, and stability. SSEF5 The student will describe the roles of government in a market economy. a. Explain why government provides public goods and services, redistributes income, protects property rights, and resolves market failures. b. Give examples of government regulation and deregulation and their effects on consumers and producers. Essential Questions What trade-offs are made when a nation chooses a market, mixed, or command economic system? •Why does the private sector lack incentives to produce certain types of goods and services? (free-rider problem) ECONOMIC SYSTEMS Economic Systems • The survival of any society depends on its ability to provide food, clothing, and shelter for its people • There are three major kinds of economic systems – Traditional – Command – market traditional • Advantages – Everyone knows which role to play – Little uncertainty over WHAT or how to produce – Whom is also determined by tradition • Disadvantages – Tends to discourage new ideas and new ways of doing things – Lack of progress leads to a lower standard of living Slide 4 of 5 Command Economies • Advantages – It can change direction drastically over a short period of time – Health and public services are available to everyone and little or no cost • Disadvantages – Not designed to meet wants of consumers – No incentive to work hard – Requires a large bureaucracy – Does not have the flexibility to deal with day to day problems Slide 3 of 5 Market Economies • Advantages – It can adjust to change – Individual freedom – Relatively low government interference – Decision making is decentralized • Disadvantages – Does not provide the basic needs of everyone – Does not provide enough of the services that people value highly – Uncertainty Slide 2 of 5 ____ 1. Which of the following is NOT a strength of a market economy? a. It can adjust to change over time. b. It gives producers and consumers freedom. c. It has decentralized decision making. d. It supports all of its people equally. _____ 2. Which of the following societies are examples of traditional economies? a. United States, Japan, Germany b. African Mbuti, Australian Aborigines c. North Korea, Cuba d. South Africa, Egypt, Democratic Republic of the Congo ____ 3. Who would you most likely find participating in a market economy? a. a government official deciding how much wheat to plant this season b. a teenage girl deciding how to spend the extra money she earned working overtime c. a hunter deciding where to hunt to provide his family with a meal that night d. a worker deciding to leave his job early because the production quota has been met Answer to 1-3 • 1. D- Why? • 2. B- Why? • 3. B- Why? Slide 5 of 5 More about Mixed Economies • For instance, while China is considered a command economy, it has rapidly begun to incorporate many aspects of a market structure into its economy. Likewise, while the United States is considered to have one of the most capitalistic economies in the world, the government still intervenes in some markets. Therefore, there is a third economic system known as a mixed economy. This is simply a way of naming an economy that incorporates aspects from different economic systems. A question for this standard might look like this: The nation of Welton needs to build a new dam to control flooding near its Largest city. If Welton is a pure market economy, then these new improvements will MOST likely be left up to A the government B the individuals who are willing to pay for the new dam C anyone who would benefit from the dam D the owners of the property on which the dam would be built This question highlights a problem with a purely market Based system, namely that public goods (like roads, bridges, and dams) are difficult to build without a government that sees to their production. Choice C is not the correct answer because once a dam is built everyone benefits from it. While choice D might seem like a correct answer, if a property owner does not want the dam to be built, he or she is under no obligation to build it. Ultimately, in a pure market economy individuals must be willing to pay for public goods (answer choice B), no matter who would benefit from the final product. ____ 1. Which of the following is NOT a major economic and social goal of the United States? a. economic interdependence c. economic growth b. economic security d. economic efficiency ____ 2. Economic goals are important because they a. tell us WHAT and HOW to produce. b. answer the FOR WHOM to produce question. c. help people determine if an economic system meets their needs. d. tell the government what kinds of regulations are needed. ____ 3. Which is an example of economic growth? a. When a new ball bearing plant opens, 1,500 jobs are created. b. The price of vegetables increases sharply in the spring. c. An employer is fined for refusing to hire women to fill new job openings. d. A man decides to quit working as a waiter and begin a career in marketing. ____ 4. Why is economic growth an important goal of the United States? a. Americans have a strong sense of fairness. b. Economic growth leads to price stability. c. Americans believe that it is the only way to achieve economic equality. d. Economic growth is needed to better satisfy the wants and needs of a growing population. 1. 2. 3. 4. B- Why? C- Why? A- Why? D- Why? ____ 1. All of the following are characteristics of capitalism EXCEPT a. b. private property rights. economic freedom. c. d. profit motive. government control. ____ 2. What is another term for a modified private enterprise economy? a. mixed economy c. command economy b. pure capitalism d. free enterprise ____ 3. Why are entrepreneurs important in a free enterprise economy? a. Entrepreneurs do not pay taxes. b. Entrepreneurs help define the seven economic and social goals. c. Entrepreneurs pay high wages to their employees. d. Entrepreneurs start new businesses. 1. D- Why? 2. D- Why? 3. D- Why?