The Economic System at Work - Fulton Independent School 17-1 Text.pdfTypes of Economic Systems There are three basic economic systems in the world: traditional, command, and mar-ket

450 CHAPTER 17

Our society is based on principles

of individual freedom. Those same

principles of freedom apply to the

U.S. economic system. We have

what is called a free market economy. This means

that if you want to start a business, you can. Your

success will be determined by your business ability

and the market, not by a government agency.

Economic SystemsSuppose you wanted to make a sandwich

but you discovered that you had no bread.

How could you get more? Would you have

to grind wheat into fl our so that you could

bake a new loaf? Might you have to stand

in a long line for hours before someone gave

you a few slices? Of course you wouldn’t.

With a quick trip to the store, you could buy

as many loaves of bread as you wanted.

In other parts of the world, however, get-

ting items like bread is not as simple. How

people get the things they want is determined

by a country’s economic system. The nature

of economic systems varies widely from place

to place. However, they all help people create

and obtain the goods and services they need.

The Economic System at WorkBEFORE YOU READ

The Main Idea

Countries form many

types of economic

systems to meet their

citizens’ needs and wants.

The United States has a

market economy.

Reading Focus

1. How do different economic

systems help satisfy people’s

needs?

2. What factors shape life in a

market economy?

3. What is the U.S. economic

system like?

Key Terms

market economy, p. 452

free market, p. 452

profit, p. 453

scarcity, p. 453

law of supply, p. 453

law of demand, p. 453

free enterprise, p. 455

capitalism, p. 455

monopoly, p. 456

The Need for Economic Systems

All around the world, people need certain

things to survive. People cannot live without

food and water, shelter, and clothing. These

basic materials that people cannot live with-

out are called needs.

In addition to their needs, there are many

items that people want in order to make their

lives more comfortable. These items are not

necessary for survival, but they can have great

value to people. For example, you may want

a television, a cell phone, or a car. You do not

really need any of these things in order to live,

but they can make your life easier, more com-

fortable, or more enjoyable. These types of

items are called wants. Different people have

different wants. In addition, a person’s wants

can change over time.

People satisfy their wants by obtaining

goods and services. For example, if you want

fun, you can buy a new game. The process of

obtaining goods and services to satisfy your

wants is called the want-satisfaction chain.

How people obtain goods and services is what

distinguishes different economic systems from

each other.

As you read, take

notes on economic

systems, life in a market economy,

and the U.S. economic system.

Use a chart like this one to record

your notes.

TAKING

NOTES

At Level

Why It MattersTell students that American economic

freedoms include the freedom to buy

and sell, to earn a living, to earn a

profi t, to compete, and to own property.

Ask students which of these freedoms

they have experienced in their daily

lives. (Possible answers: the freedom

to compete for jobs, the freedom to buy

and sell merchandise or services) Tell

students to consider how these freedoms

are important to the health and well be-

ing of U.S. citizens.

Key Terms

Preteach the following terms:

market economy economy in which

people are free to obtain goods and services

in almost any way they want (p. 452)

free market right to buy and sell goods as

you want (p. 452)

profi t money that a business has left after

expenses (p. 453)

scarcity lack of a particular resource

(p. 453)

law of supply economic principle that

businesses will produce more products

when they can sell them at higher prices and

fewer products when prices are low (p. 453)

law of demand economic principle that

buyers will demand and buy more products

when prices are low and fewer products

when prices are higher (p. 453)

free enterprise principle that business

owners in a free market are allowed to run

their businesses in any way they see fi t, with

little government interference (p. 455)

capitalism economic system in which the

means of production are owned by private

citizens (p. 455)

monopoly what a company has when it is

the only one selling a product or providing a

service (p. 456)

Taking NotesEconomicSystems

• How people obtain goods and services

• Traditional, command,and market economies

Life in a Market Economy

• Competitionfor resources

• Supply and demand

• Freeenterprise,capitalism

U.S. Economic System

• U.S. mixed economy

• Mostly market economy

• Somegovernmentregulation

Teach the Main Idea

The Economic System at Work

1. Teach Ask students the Reading Focus

questions to teach this section.

2. Apply Have students preview the section

and create a list of all of the illustrations in

the section. Ask them to leave room next to

each illustration description for comments.

As students read the section, ask them

to analyze how each illustration shows a

concept discussed in the text.

3. Review Create a master list of the section’s

illustrations on the board. Ask students

to share their observations about each

illustration.

4. Practice/Homework Have students write

a one-paragraph story to illustrate each of

the four American economic freedoms.

450 CHAPTER 17

Collaborative Learning

THE ECONOMIC SYSTEM 451

The Want-

Satisfaction ChainTo satisfy your need for food, you may want a sandwich on a bun.

This want-satisfaction chain shows the steps involved in helping you

satisfy that want.

ANALYSIS

SKILL ANALYZING VISUALS

What different industries are involved in the

want-satisfaction chain?

1Grain

becomes Flour

Farmers harvest grain and send it to

mills where it is ground into flour.

4 Lunch is Served

The final step in the want-satisfaction

chain is a tasty sandwich on a bun.

3Bread

is Delivered

Kitchens, restaurants, and cafeterias

receive bread from bakeries.

2 Flour

becomes Bread

Bakers use flour to make all kinds of

bread products, including sandwich buns.

Reading Focus

How do different economic systems

help satisfy people’s needs?

Economic Systems

Contrast In what ways is a market

economy different from a command

economy and a traditional economy?

A market economy is based on produc-

ers’ and consumers’ freedom to make

decisions about what they buy and

sell, and it involves trade and money.

In a traditional economy, people grow

their own food and make their own

products. In a command economy,

the government makes all economic

decisions.

Elaborate What are some of your

wants, and what infl uences them?

Students’ answers will vary but should

show understanding of wants and

what infl uences them.

From the Source: Readings in

Economics and Government: Reading

64: Price Making in a Democracy;

Reading 67: The Affl uent Society

Linking to TodaySatisfying Customers’ Wants Some-

times manufacturers change their prod-

ucts in order to better satisfy custom-

ers’ wants. For example, the Nabisco

company has been producing cookies

and crackers since 1898. In 2005 the

company introduced new versions of

several kinds of cookies and crackers

made with whole grains. The company

hoped that the new snacks would satisfy

the wants of health-conscious consum-

ers, inspire them to buy the new snacks,

and help the company make money. Create a Graphic Organizer1. Organize students into small groups. Have

each group select an economic freedom and

imagine that this economic freedom does

not exist.

2. Have each group create a chart or diagram

describing the problems or limitations that

the U.S. economy would experience if that

specifi c economic freedom were missing.

For example, students might indicate that

consumers would be unable to shop for the

best price if they did not have the freedom to

buy what they want from different merchants.

3. Invite groups to present their charts or

diagrams to the class. Visual/Spatial,

Verbal/Linguistic

Alternative Assessment Handbook: Rubric 13:

Graphic Organizers

At Level

AnswersAnalyzing Visuals farming, milling,

baking, delivery, food service

451

Differentiating Instruction

Types of Economic Systems

There are three basic economic systems in

the world: traditional, command, and mar-

ket economies. Most countries today use a

mix of these systems to satisfy their citizens’

wants and needs.

In a traditional economy, economic deci-

sions are based on how economic activity has

been carried out in the past. People may grow

their own food and make their own goods.

They might grow and make everything

they need to survive, or they might trade to

obtain things that they cannot make them-

selves. If they do trade, they may or may not

use money. They may use a barter system in

which they trade goods for other goods.

A second type of economic system is

called a command economy. In this kind of

system, the government makes all economic

decisions. In addition, the government owns

or controls all capital, tools, and production

equipment. It tells managers and workers on

farms and in factories what they can pro-

duce, how much of it to produce, and how

much they can charge for it. Historically,

many Communist countries have tried to

set up command economies. Most of these

economies have collapsed, but North Korea

and Cuba still have command economies.

The third type of economy is the one

found in most countries, including the Unit-

ed States. It is called a market economy. A

market economy is one in which economic

decisions are made by individuals looking out

for their own and their families’ best interests.

People can start businesses to make and sell

any legal products they choose. Based on the

market, they can also set their own prices for

these products. In other words, the govern-

ment does not tell people what to produce

or buy. In this way, a market economy is the

opposite of a command economy.

A market economy is based on freedom.

People are free to own property, to create com-

panies, and to buy products as they choose.

The right to buy and sell goods as you want

is called a free market. Companies also need

to be free to compete with each other. In a

free market, competition among sellers—not

any government policy—is the main fac-

tor in setting prices. Sellers try to price their

goods lower than their competitors so that

people will buy them. At the same time, they

have to be careful not to set their prices so

low that they lose money.

READING CHECK Explaining Why do countries

need economic systems?

452 CHAPTER 17

American Economic FreedomsAmong the basic rights we have as Americans

are certain economic freedoms. These economic

freedoms are the foundation of our free market

economy.

How do these freedoms affect our everyday lives?

Freedom to Compete

Freedom to Own Property

MISCONCEPTION

ALERT

Make sure students understand that the

text refers to the American economic

system in four ways: a market economy,

a free market, capitalism, and a free

enterprise system. Clarify that these

terms all describe the same American

economic system.

Advanced Learners/GATEResearch Command Economies

1. Have students research the Cuban economic

system and another example of a command

economy using reference books and the

Internet. Allow students to use historical

examples, such as the Soviet Union.

2. Ask students to write an informational essay

about the government’s role in the Cuban

economy and the other economy they chose

that incorporates their research. Remind

them to use specifi c examples in their essays.

Students may also wish to compare the two

economies in their essays.

3. Allow students to share their essays with the

class. Verbal/Linguistic


Writing to Inform

Above Level

Research Required

Answers(photo) Possible answer: They allow us

to make our own decisions about how to

earn and spend money.

Reading Check to satisfy people’s

needs and wants

452



In a market economy, people are free to start

a business and pursue profi t. Profi t is the

money a business has left after it has paid its

expenses. The profi t motive, or the desire to

make a profi t, is essential to a successful mar-

ket economy. If people do not want profi t,

they will not start businesses and people will

have no way to obtain goods and services.

Competition for Resources

In order to make a profi t, people need to

provide a good or service. In order to pro-

vide a good or service, they need resources.

As you know, however, resources are not

unlimited. As a result, businesses and indi-

viduals must compete for the resources

they need. This competition eventually

affects everyone, not just business owners.

In time, it affects the prices we pay for the

goods we want.

One result of the competition for these

resources is scarcity. Scarcity is the lack

of a particular resource. When a resource

becomes scarce, it is harder for producers to

obtain. Products made with that resource also

become more diffi cult to obtain. As a result,

the prices for these items usually rise.

Supply and Demand

Changes in prices are usually the result

of the laws of supply and demand. These

laws are among the most basic of all eco-

nomic principles. The law of supply states

that businesses will produce more products

when they can sell them at higher prices.

They will produce fewer products when

prices are low. The law of demand, on the

other hand, states that buyers will demand,

or want, a greater quantity of a good when

its price is low. Likewise, as prices rise, the

quantity demanded falls. That is, when the

price of a good goes up, people buy less of

that good.

Although you may not realize it, you

are probably already familiar with the prin-

ciples of supply and demand. Imagine, for

example, that you are paid $100 by each of

your neighbors to mow their lawns. You will

probably want to mow quite a few lawns,

because that is a good price for your service.

Imagine, however, that your neighbors only

wanted to pay you $1 per lawn. Would you

still want to mow as many? Most people

would not, because that price is too low.

That is what the law of supply states—peo-

ple are more eager to provide a good or ser-

vice for a high price than for a low one.


Freedom to Buyand Sell

Freedom of Workers to Compete for Jobs

Freedom to Earn Profits

Connect to Math Supply and Demand To clarify the laws

of supply and demand, present the fol-

lowing problem to students:

Jan’s Records is selling CDs for $18.

Today, Jan sold fi ve CDs. Nita’s Music

is selling CDs for $12. Today Nita sold

ten CDs. Which merchant made more

money? Why? (Jan made $90, while

Nita made $120.) Help students to un-

derstand that although Jan wants to sup-

ply CDs at $18 a CD, there is limited

demand for CDs at that price. In con-

trast, Nita is supplying CDs at a price

which customers prefer, or demand.Learners Having Diffi cultyIllustrate Supply and Demand

1. Have students look through newspapers and

magazines to fi nd headlines about events that

illustrate the effects of supply and demand.

2. Ask each student to cut out these headlines,

paste them onto a sheet of paper, and write a

brief description of how the laws of supply

and demand explain each headline.

3. Have volunteers explain their collages to the

class. Visual/Spatial, Verbal/Linguistic


Collages

Below Level

Reading Focus

What factors shape life in a market

economy?


Explain What happens when a

resource becomes scarce? It is harder

for producers to obtain, and prices

for products made with that resource

might rise.

Make Generalizations How do

businesses use the laws of supply and

demand to try to make a profi t? To

increase their profi t, businesses have

to fi nd the highest price that custom-

ers are willing to pay for the goods or

services they offer.

Elaborate What factors might affect

the demand for a good or service?

Possible answers: its price, quality,

usefulness, ease of use, advertising

Political Cartoons for Civics,

Government, and Economics:

Cartoon 12: Concentration of the

Country’s Wealth



The law of demand works in the same

way. If you went to a CD store and found

that CDs were priced at $2 each, how many

would you buy? At that price, you might

buy quite a few of them. How many would

you buy, though, if they cost $25 each? You

would probably buy fewer, because the price

is so much higher. That is the basic idea

behind the law of demand.

What business owners hope is that the

supply of and demand for a product will bal-

ance each other. Because they want to fi nd

a price at which consumers will continue to

buy a product, the price cannot be too high.

At the same time, however, business owners

need to make a profi t. Therefore, the price

cannot be too low either.

To understand this balance, imagine that

you are selling lemonade. You need to fi gure

out a good price to charge for your product.

First you think that you would like to charge

$10 per glass. That way you will make a large

profi t on each glass that you sell. Unfortu-

nately, however, people do not want to pay

that much for it, and you are left with lots of

unsold lemonade.

To try to sell more, you decide to drop

your price. Now you will sell lemonade for

a nickel a glass. Lots of people are willing to

buy it now. However, you quickly learn that

it costs you more to make the lemonade

than you earn by selling it. Obviously, you

will need to raise your prices if you want to

stay in business for long.

454 CHAPTER 17

In June 2005 the U.S. Supreme Court ruled that a popular Web

site was responsible for violating copyright laws. The company

itself did not download illegal material. However, its file-sharing

technology helped individuals share copyrighted materials, such

as movies and music, without paying for them.

Article I, Section 8 of the Constitution

gives Congress the power to make

copyright laws. Copyright laws give artists such as writers,

painters, and performers lifetime ownership of their work.

People who wish to use a copyrighted work must receive

the owner’s permission and often pay a fee. For example,

whenever you buy a CD, the copyright holder gets paid.

But how would the copyright holder get paid if you did

not pay for the CD? People are often tempted to down-

load music files without paying. This is illegal—it violates

the artist’s copyright. For some artists, the lost income

from illegally downloaded works may threaten their abil-

ity to continue working. Other artists, however, offer free,

legal downloads of their music on the Internet to attract

more listeners.

Downloading music from the Internet without

paying for it may violate copyright laws.

File-Sharing and Copyright Law

1. Why do you think the framers of the Constitution

wanted to protect artists’ rights to their works?

2. What do you think can be done to discourage

people from illegally obtaining copyrighted music

and movies?

EVALUATING THE LAWANALYSIS

SKILL

go.hrw.com

KEYWORD: SZ7 CH17

AnswersEvaluating the Law 1. Possible

answers: to ensure that they could

make a living from their work; to prevent

plagiarism 2. Possible answers: Jail

those who disobey the law; create a

technology that ensures that the material

cannot be copied.

Discuss the Use of Copyright Law1. Tell students that they will create arguments

for and against the use of the U.S.

copyright law as it pertains to fi le sharing of

copyrighted material.

2. Have students work in small groups to

portray the following: software companies,

representatives of musical artists, customers

supporting fi le sharing of copyrighted music,

customers against fi le sharing of copyrighted

musical material. Have students create

arguments to present in a discussion on

fi le-sharing.

3. Ask students to present their cases in a

classroom panel. Interpersonal, Verbal/

Linguistic


Discussions

Info to KnowCopyright Law Article 1, Section

8, Clause 8 of the United States

Constitution reads, “To promote the

Progress of Science and useful Arts, by

securing for limited times to authors

and inventors the exclusive right to

their respective writings and discover-

ies.” The law protects the works of art-

ists, scientists, authors, and inventors.

454

Above Level


In response, you raise your prices to $2

per glass. You now have fewer customers than

you did before, but your business is still steady.

You are also making less profi t per glass than

you did when you charged $10, but you are

not losing money. In other words, you have

managed to achieve a balance between sup-

ply and demand.

Free Enterprise

In a market economy, no one orders busi-

ness owners how to run their businesses. Of

course, if owners do not follow the laws of

supply and demand, their businesses fail. Still,

business owners may operate however they

see fi t, with little direction or interference

by government. This principle is called free

enterprise.

The free-enterprise system offers enter-

prising businesspeople the opportunity to

make huge profi ts. For example, Bill Gates

and Steve Jobs are two Americans who used

their economic freedom to start successful

companies. With no intervention from the

government, they turned their companies—

Microsoft and Apple Computer—into hugely

successful operations.

Most companies are not as successful as

Microsoft and Apple, though. By accepting

the opportunity to make profi ts, business

owners also open themselves to the possibil-

ity of huge losses if their companies do not

perform well. They might create a product

only to learn that there is no demand for it,

or they might fi nd that they have to charge

more than people are willing to pay for their

goods. Mistakes like these can cost business

owners. Some even end up losing their com-

panies. This is the main risk that people face

in a free-enterprise system.

Competition is vital to the free-enterprise

system. As you have already learned, competi-

tion between companies is the main factor in

setting prices. In addition, competition drives

companies to improve their products. Each

company wants the products it creates to be

the best so that people will buy them.

The constant desire to improve products

means that innovation is also important in

free enterprise. Clever thinkers are always

looking for new products they can create or

for ways to improve existing products. They

hope that their innovations will help them

make huge profi ts from their products.

Innovative people do not want others to

steal their ideas. They want ways to protect

what they have created so that no one else

can take credit for it or make money from it.

In the United States, there are two ways to

protect ideas. A patent gives you the exclu-

sive right to make and sell your invention

for a certain number of years. A copyright is

the exclusive right to publish or sell a piece of

writing, music, or art.

Capitalism

The main driving force behind the American

economy today is capitalism. Capitalism is

an economic system in which the produc-

tive resources—farms, factories, machines,

and so on—are owned by private citizens.

Capitalism is closely linked to a market

economy. People are free to buy and sell as

they please. Capitalism also encourages peo-

ple to invest their money so that they will be

successful fi nancially. If they are successful,

they will be able to improve their quality of

life. Anyone with a little extra money has the

opportunity to invest it, either in a company

of their own or in someone else’s company.

If a company is successful, it can make

huge profi ts, and not only for its owners.

All the people who invested in the com-

pany can also make profi ts. By encouraging

investment, innovation, and the produc-

tion of quality goods, the capitalist system

benefi ts the American people as a whole.

Monopolies

Since competition is an essential part of the

free-enterprise system, business practices

that limit competition are frowned upon.

Such practices disrupt the free market and

weaken a market economy.


Research African American Inventors’ Patents1. Tell students that, before the Civil War,

African American slaves could not receive

patents on their inventions. This changed,

however, in the years following the war, when

African Americans were freed from slavery.

2. Divide students into small groups. Have

each group research an African American

inventor—such as Jan Matzelinger, William

Purvis, Andrew Beard, or Granville Woods—

who received at least one patent during the

years 1870–1900.

3. Have each group identify and share with

the class at least one item patented by the

inventor they researched. Students should

explain how each invention works and, if

possible, show a picture of it.

4. Lead a class discussion on how receiving

patents is an important economic freedom for

all Americans. Verbal/Linguistic

At Level

True or False Answer each state-

ment T if it is true and F if it is

false. If false, explain why.

1. The U.S. economic system is

called capitalism. T

2. The U.S. economic system is

also called a free enterprise

system. T

3. There is a lot of government

interference in the U.S. economic

system. F; In the U.S. economic

system, there is freedom to

compete without unreasonable

government interference.

Checking for Understanding


Research Required

Critical Thinking: Evaluating

As a result, most countries that have

market economies have banned compa-

nies from creating monopolies. A compa-

ny is said to have a monopoly if it is the

only one selling a product or providing a

service. A company that holds a monopoly

can set any price it wants. This can cause

many problems, especially if the item in

question is a necessity.

In the United States, monopolies—

except for certain public utilities—are ille-

gal. The U.S. government watches busi-

nesses to see that no new monopolies are

formed and that consumers are protected.

READING CHECK Finding the Main Idea How

are supply, demand, and free enterprise key to a

market economy?

The U.S. Economic System As you have already learned, the United

States has a market economy. For the most

part, people are free to produce and buy any

goods they wish in any way that they wish.

In a few instances, however, the U.S.

government does impose some regulations

on businesses, much like you would fi nd

in a command economy. In this way, our

market economy also includes a mix of ele-

ments of other economic systems.

A Mixed Economy

An economy that mixes elements of dif-

ferent economic systems is called a mixed

economy. In most mixed economies, busi-

nesses are largely free to operate as they

please. Their operations, however, must

fall within certain regulations set up and

monitored by the government. The U.S.

economic system is a mixed economy.

Many of our government’s regulations

on business are intended to protect people.

For example, federal and state governments

have established laws, such as minimum

wage laws, to help protect workers. Some

laws guarantee workers’ safety and protect

people from discrimination. Other govern-

ment regulations are intended to protect the

natural environment. For example, the gov-

ernment sets limits on how many chemicals

companies can release into the air or water.

These regulations sometimes cost compa-

nies money, which results in higher prices

for consumers. At the same time, however,

the regulations result in cleaner air and water

and less pollution.

The federal government may sometimes

intervene in business to help control prices.

One way the government does this is by sub-

sidizing, or giving money to, certain indus-

tries. For example, to make sure that people

can buy fl our, cereal, and other wheat prod-

ucts cheaply, the government might give

subsidies to wheat farmers. Because they

are receiving money from the government,

456 CHAPTER 17

ANALYSIS

SKILL ANALYZING PRIMARY SOURCES

What is the artist’s point of view regarding

monopolies? How can you tell?

POLITICAL CARTOON

MonopoliesBecause monopolies limit competition, they harm our free-

enterprise system. As a result, they are outlawed in the

United States.

www.CartoonStock.com

1. Ask students to think of a monopoly that is

legal, such as a public utility company. Have

students divide a sheet of paper into two

columns and write the name of the monopoly

at the top of the chart. Have them label the

fi rst column Pros and the second Cons.

2. Ask students to list reasons that the monopoly

is benefi cial in the fi rst column. Have them list

its negative effects in the second column. For

example, a water and sewage monopoly might

be benefi cial because one company can do the

job more effi ciently. However, consumers might

not be able to get the company to improve

service or lower its prices.

3. Have students share their charts with the

class. Visual/Spatial, Verbal/Linguistic


Graphic Organizers

Chart the Pros and Cons of Monopolies

At Level

Reading Focus

What is the U.S. economic system

like?

The U.S. Economic System

Identify What are some ways the

government helps protect workers?

by establishing minimum wage laws,

laws guaranteeing workers’ safety,

and laws to protect people from

discrimination

Make Judgments Do you think

that the U.S. government should

control parts of our economy? Why or

why not? Possible answers: Yes—

without government control some

companies would take advantage of

the public interest by polluting, creat-

ing monopolies, and other problems.

No—the government should stay out

of business because it interferes with

people’s ability to make a living.

U.S. Supreme Court Case Studies:

Case 10: New Deal Cases

AnswersAnalyzing Primary Sources The

artist does not approve of monopolies

and refers to their unfair practices:

rigging markets, restraining trade, and

suppressing competition.

Reading Check In a market economy,

supply and demand help determine what

goods are produced and how much

manufacturers can charge for them; free

enterprise allows business owners to

make their own decisions.

456


the farmers do not have to charge high

prices for their crops. As a result, prices for

wheat products stay low.

American Business

Think about the companies that made some

of the products you own. What do you know

about these companies? Most of the products

you own were probably made by large com-

panies. Many of the businesses we deal with

in the United States today are huge. They

employ millions of people and do business

all around the world. This has not always

been the case, however.

In the early days of the United States,

most businesses were small. They served only

local needs. Few people ever needed to do

business with people who lived far away. For

example, a farmer who needed a new piece

of equipment probably only had to travel a

few miles to purchase it.

In the late 1800s, however, larger busi-

nesses began to develop in the United States.

Improvements in transportation allowed big

companies to sell to customers who lived far

away. As businesses became more successful,

they gained more money. By reinvesting this

money in their businesses, they were able to

grow even larger.

Today, big businesses are essential to the

American economy. Many of the goods and

services we use every day could not be pro-

duced by small companies. For example, to

produce steel, electricity, automobiles, and

ships requires large and expensive machines.

Only large companies have the resources and

the tools to produce these goods effi ciently.

Economists refer to this ability of large com-

panies to produce many goods effi ciently as

the economy of scale.

In the last few decades of the 1900s,

companies began to grow even larger. Busi-

nesses began to join together to form huge

organizations called conglomerates. A con-

glomerate is formed by the merger of busi-

nesses that produce, supply, or sell a number


Comparing

Economic SystemsCommand, market, and traditional economies differ in the

way goods are produced and sold. Most countries use a mix

of two more of these systems.

Traditional

Market

ANALYSIS

SKILL ANALYZING VISUALS

How is the United States a mix of different

economic systems?

This sign explains to customers that they are limitedto only 113 grams of bread per person.

Command

AnswersAnalyzing Visuals The U.S.

government imposes some regulations on

businesses, but Americans are generally

free to produce, buy, and sell whatever

goods and services they choose.

Learners Having Diffi culty1. Tell students that American conglomerates

today produce a variety of well-known brand-

name products.

2. To help them understand the role of

conglomerates in their life, have students list

fi ve products that they buy or use on a regular

basis.

3. Have students conduct research to determine

whether any of the products on their list

are sold by a conglomerate. Based on their

fi ndings, ask each student to create a chart

identifying the company that produces each of

the fi ve products and if any of the companies

are part of a conglomerate. Have students add

other companies or products owned by the

same conglomerate to their charts.

4. Ask students to share their charts with the

class. Verbal/Linguistic

Online Resources

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KEYWORD: SZ7 CH17

ACTIVITY: The U.S.

Economic System

Below Level

Research Required

Info to KnowThe Microsoft Monopoly In May 1990

the Federal Trade Commission began

an epic antitrust investigation of the

Microsoft Corporation, charging that

the software company illegally impeded

competition with unfair pricing and hid

codes in its operating system to prevent

the use of competitors’ software ap-

plications. On June 7, 2000, after many

legal battles, a federal judge ruled that

Microsoft should be divided into two

smaller companies. A year later a fed-

eral appeals court reversed the decision,

but ruled that Microsoft had broken

antitrust laws. In 2001 the Justice De-

partment proposed a settlement requir-

ing Microsoft to, among other things,

allow computer manufacturers to decide

which Microsoft products to load into

their computers. The settlement was ap-

proved in 2002, but Microsoft still faced

anti-trust complaints from other private

companies.

457

of unrelated goods. For example, a single

conglomerate might control communication

systems, insurance companies, hotel chains,

and many other businesses. The government

monitors conglomerates closely to be sure

that economic competition is not harmed.

Of course, small businesses have never

disappeared in the United States. Even

as big companies get bigger, many small

companies continue to thrive. It is large-

ly because of the mix of large and small

businesses that the U.S. economy remains

powerful today.

READING CHECK Summarizing What is the U.S.

economy like today?

458 CHAPTER 17

Reviewing Ideas and Terms

1. a. Defi ne Write a defi nition for the terms marketeconomy, free market, profi t, scarcity, law ofsupply, and law of demand.

b. Analyze Information How are scarcity and the laws of supply and demand connected?

2. a. Defi ne Write a defi nition for the terms free enterprise, capitalism, and monopoly.

b. Draw Conclusions How do monopolies harm free enterprise?

3. a. Summarize Why is the United States described as a mixed economy?

b. Analyze How is capitalism linked to a market economy?

Critical Thinking

4. Summarizing Use your notes and a graphic organizer like this one to identify the fi ve economic freedoms that Americans enjoy.

Focus on Writing

5. Contrasting Explain how the U.S. economicsystem differs from the economic system in Cuba.

SECTION 1 ASSESSMENTKEYWORD: SZ7 HP17

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Online Quiz

EconomicFreedoms

PRESS CONFERENCES

Understanding PublicityIn 1997 the federal government charged the Microsoft

corporation with violating antitrust laws. To announce

the trial and its results, both the government and

Microsoft used a powerful tool—the press conference.

During a press conference reporters gather to hear

statements from an individual or an organization. They

generally report the information to the public in news-

papers, on radio and television, or on the Internet.

Often people hold press conferences to express their

point of view. Press conferences are good publicity tools

because they give people control over the way in which

information is presented. They are an opportunity for

photographs to be taken with a background and

presentation.

MEDIA INVESTIGATION

What steps would one have to take to hold a press

conference?

ANALYSIS

SKILL

An attorney for the U.S. Justice Department holds a press conference dur-ing the Microsoft antitrust trial.

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KEYWORD: SZ7 CH17

Close

Discuss with students the structure

of the U.S. economic system and the

government’s role in regulating it.

Review

Online Quiz, Section 1

Quiz Game

Assess

SE Section 1 Assessment

Daily Quizzes: Section 1

Reteach

Main Idea Activities for Differentiated

Instruction: Section 1

Answers

Media Investigations prepare a

statement; inform the press

Reading Check It is a mixed economy

with many large and small businesses.

Section 1 Assessment Answers

1. a. market economy, p. 452; free market,

p. 452; profit, p. 453; scarcity, p. 453; law of

supply, p. 453; law of demand, p. 453 b. When

a good is scarce, the demand for it is greater

than the supply, and its price might go up.

2. a. free enterprise, p. 455; capitalism, p. 455;

monopoly, p. 456 b. They limit competi-

tion and consumer choice and may make a

necessity too expensive.

3. a. because it mixes elements of different

economic systems b. Capitalism requires the

freedom of a market economy to allow pri-

vate citizens to invest their money and make

other economic choices.

4. Students should identify the freedoms to

buy, sell, earn a living, earn a profit, and own

property.

5. Students should explain how Cuba’s com-

mand economy differs from the American

mixed economy. For example, the Cuban

government makes all economic decisions. In

the United States, people are free to buy and

sell products as they choose.

458

Documents

The Economic System at Work - Fulton Independent School 17-1 Text.pdfTypes of Economic Systems There are three basic economic systems in the world: traditional, command, and mar-ket