Economics

How does an
economic
system help a
society deal
with scarcity?
 SS.912.E.1.3:
Compare how the various
economic systems (traditional,
market, command, mixed) answer
the questions: (1) What to
produce?; (2) How to produce?;
and (3) For whom to produce?

SS.912.E.3.5:
Compare the current United States
economy with other developed
and developing nations.
 ❑Economic Systems:
Economic Systems organized way a society provides for
the wants and needs of its people

❑Traditional Economy:
economic system in which the
allocation of scarce resources, and
other economic activity, is the result
of ritual, habit, or custom

❑Command Economy:
economic system characterized by a
central authority that makes most of
the major economic decisions
 ❑Socialism:
Economic Systems economic system in which
government owns some factors of
production and has a role in
determining what and how goods
are produced

❑Market:
meeting place or arrangement
through which buyers and sellers
interact to determine price and
quantity of an economic product;
may be local, regional, national, or
global
 ❑Market Economy:
Economic Systems economic system in which supply,
demand, and the price system help
people allocate resources and make
the WHAT, HOW, and FOR WHOM to
produce decisions; same as free
enterprise economy

❑Capitalism:
economic system in which private
citizens own and use the factors of
production in order to generate
profits
Types of Economic Systems VIDEO
 Guiding
Question
How does a
traditional economy
answer the basic
questions of WHAT,
HOW, and FOR WHOM
to produce?
 An economic system is an organized way a
society provides for the wants and needs of its
people.
 Traditional
Economies
In a traditional economy, resource use and social
behavior are dictated by ritual, habit, or custom.

The main advantage of a traditional economy is that

the answers to WHAT, HOW, and FOR WHOM to
produce are determined by customs and tradition.

The main disadvantage of a traditional economy is

that it tends to discourage new ideas and new ways
of doing things.
 Checking for
Understanding

What are the

advantages and
disadvantages of a
traditional economy?
 Why do you think
leaders in traditional
economies
discourage or even
punish change?
 Guiding
Question
How does a
command economy
answer the basic
questions of WHAT,
HOW, and FOR WHOM
to produce?
 In a command economy, a central
authority makes the major decisions
about WHAT, HOW, and FOR WHOM
to produce.

Socialism is a modern, somewhat

more liberal version of a command
economy.

The main advantages of a command

economy are that it can change
direction quickly, and it allows many
citizens to receive goods and
services they otherwise could not
afford.

Disadvantages include the loss of

individual freedom to choose, the
production of low-quality goods, a
large decision-making bureaucracy,
and lack of individual initiative.
 Checking for
Understanding

Who allocates
resources in a
command economy?
 This Cuban marketplace
represents all the common
characteristics of a
command economy. The
government has the most
influence in determining
WHAT types of products
are sold, the method for
HOW those products are
sold, and FOR WHOM
those products are sold.
The preferences of the
consumer do not carry as
much impact as is true in
the U.S. market economy.
 What are the
major problems
with a
command
economy?
 Guiding
Question
How does a market
economy answer the
basic questions of
WHAT, HOW, and FOR
WHOM to produce?
A market is an arrangement
where buyers and sellers
interact to determine the
prices and quantities of
goods and services.

A market might be in a
physical location, such as a
farmer's market, or on a Web
site, such as eBay.

Regardless of its form, a

market can exist if a
mechanism is in place for
buyers and sellers to interact
 A market economy is an economic system in which supply,
demand, and the price system help people allocate resources
and make the WHAT, HOW, and FOR WHOM to produce
decisions; same as free enterprise economy.

A market economy is often described as being based on

capitalism—an economic system where private citizens own
and use the factors of production for their own profit or gain.

The term capitalism draws attention to the private ownership

of resources, while the term market economy focuses on
where the goods and services are exchanged.

As a result, the two terms focus on different features of the

same economic system.
 Advantages of a market economy
include a high degree of individual
freedom and customer satisfaction, a
variety of goods and services, the
incentive to take care of private
property, and decentralized decision
making.

Disadvantages include not providing

for basic needs of everyone, a
shortage of some services, and a high
degree of uncertainty.
 Checking for
Understanding

What are the main

benefits of a
market economy?
 How do the
economies
of the two
countries
Services account for 30% of
North Korea's economy.
differ?
Agriculture accounts for 22%.
Industry accounts for 48%.
Services account for 58% of
South Korea's economy.
Agriculture accounts for 2%.
Industry accounts for 40%.
 Production in a command
economy is never as efficient
as one based on free
markets. When Korea was
divided into two countries in
1945, North Korea became a
command economy while
South Korea became a
market economy. By 2017,
the output per person of
South Korea was more than
23 times larger than North
Korea’s output.

Why would an economy

based on services and
industry rather than
agriculture have a higher
output per person?
 How might the
government help
remedy some of
the disadvantages
of a market
economy?