Chapter 2 Economic Systems BIG IDEAS = Responsibility, Choices, Changes ...

[Pages:18]Chapter 2 Economic Systems BIG IDEAS = Responsibility, Choices, Changes, and Relationships Essential Questions:

? How do societies provide for their people in a traditional, command and market economy?

? How do the major characteristics of free enterprise capitalism work in the US? ? 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,M)

3. Describe the characteristics of free enterprise.

4. Describe the roles of government, consumers and entrepreneurs play in free enterprise capitalism.

What you need to Do and Be Skilled at: ? Read, comprehend, and summarize key information from text

collaboratively for a study guide. ? Identifying and providing examples of various economies with real world

applications. (T,C,M and C,S,M) ? Illustrating and explaining economic systems and key concepts within

events and a block buster movie.

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Enter Lesson #1 Vocabulary KNOW

9 Vocab words

? economic system ? market

? traditional

economy

economy

? market

? socialism ? communism

? command economy

? 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 today combine the elements of all three.

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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 ? Everyone knows which role to play. ? Little uncertainty on what or how to produce. ? Customs and traditions determine who is provided for.

? Disadvantages ? Individuals generally not free to make decisions ? New ideas discouraged, leading to stagnation and a lower standard of living ? Strict rules defined by elders and ancestors

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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.

? Advantages ? Can change direction drastically through emphasizing/allocation ? Health and public services available to everyone at little or no cost

? Disadvantages ? Basic wants and needs of consumers are ignored. ? Economies tend to be unproductive, not producing a good product. ? Large decision-making bureaucracy lacks flexibility. ? Severely limits private property rights ? Individual freedom and initiative are limited.

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Market Economies

In a market economy, consumers and businesses jointly 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 are privately owned.

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Market Economies (cont.)

? Advantages

? High degree of individual freedom ? Adjusts gradually to change over time ? Small degree of government interference ? Decision making is decentralized ? Large variety of goods and services ? High degree of consumer satisfaction

? Disadvantages

? Not everyone is provided for ? May not provide enough of some basic goods and services ? High degree of uncertainty for workers and employers

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