Bell Ringer

What do you know about the

differences between

and ?

Objectives

1. Identify the three key economic

questions that all societies must

answer.

2. Analyze the societal values that

determine how a country answers the

three economic questions.

Introduction

Each society is guided by its economic

system, which affects the way in which it

does business within the society itself

and with other societies.

A society’s values, such as freedom or

tradition, guide the type of economic

system that society will have.

Three Economic Questions

As a result of scarce resources, societies must

answer three key economic questions:

What goods and services should be

produced?

How should these goods and services be

produced?

Who consumes these goods and services?

Question 1

What goods and services should be

produced?

Each society must decide what to produce in

order to satisfy the needs and wants of its

people.

What can be produced is also limited by a

society’s available resources.

Question 2

How should goods and services be

produced?

As a society decides how to produce its

goods and services, it must consider

how to efficiently use its land, labor,

and capital.

Question 3

Who consumes goods and services?

This question is largely determined by how

societies distribute wealth/income.

If not wealth, then another metric is used to

determine who will get to consume the

goods and services produced.

Ex.- Government loyalty, family lineage, control

of power, etc.

Review/Summary

How does the United States answer the

three key economic questions? What? How? Who?

Economic Goals Assignment

Jigsaw Get into a group of five people

Read pg. 25-27 “Economic Goals”

Assign one goal for each person to read, take notes on, and report back to rest of the group

2-3 bullet points per section

Put into your notes

Review/Summary

Societies value some economic goals over others, and often these goals are in conflict with one another.

In your opinion, how does American society prioritize these goals?

Rank the goals from most important to least important

(Summary for today’s notes)

Bell Ringer

• The three key economic questions are

________? ________? and ________?

• What are the five economic goals?

• Which of the goals do you think is the

most important for a society to achieve

for its people? Why?

Introduction

Economic system: the methods and philosophies that a society uses to produce and distribute goods/services

Today, there are four basic types of economic systems: Traditional

Free market

Command/Planned

Mixed

Free Market Economy

What are the characteristics of a free market

economy?

A free market economy is characterized by:

Households and firms

Economic freedom

Private ownership

Self-interest & Competition

Self-Interest

In The Wealth of Nations (1776),

Adam Smith observed that in the

countless transactions that occur in

the market, the buyer and seller

consider only their self-interest.

Self-interest is the motivating

force in the free market.

Competition

Why is competition important to the free market?

Self-interest and competition work together to regulate the marketplace.

Smith called this self-regulating mechanism of the market “the invisible hand.”

http://www.youtube.com/watch?v=ulyVXa-u4wE

Advantages of a Free Market

Under ideal conditions, free

market economies have the

following economic

advantages:

They respond to rapidly

changing conditions.

They have a large degree of

economic freedom.

They encourage economic

growth.

They lend themselves to

consumer sovereignty.

A not so “Free” Market

Despite the advantages of a free market

economy, no country today operates

under a pure, unregulated free market.

Storyboard

Create a storyboard of the concept of the “invisible hand.”

The storyboard should include:

Section title (“The Invisible Hand”)

3-5 sentence summary of concept*

Visual/illustration that gives an example of the concept

Create a test question*Page 33 in the textbook

Key Terms

market: any arrangement that allows buyers and

sellers to exchange things

free market economy: an economic system in

which decisions on the three key economic

questions are based on the voluntary exchange in

markets

Key Terms, cont.

incentive: the hope of reward or fear of

penalty that encourages a person to behave

a certain way

invisible hand: a term coined by Adam Smith to

describe the self-regulating nature of the

marketplace

consumer sovereignty: the powers of consumers

to decide what gets produced

What are the characteristics of a command

economy?

A command (or planned) economy is

characterized by:

Government answers the three economic questions

(What? How? Who?)

Government ownership of land, labor, and capital

Private property, free market pricing, competition, and

consumer choice

Command Economy

Socialism

The term socialism describes a

range of economic and political

systems based on the belief that

wealth should be evenly

distributed throughout society.

The “Robin Hood Principle”

Communism

Under communism, the central

government owns and controls all

resources and means of

production.

Communism derived from the

writings of Karl Marx

The inevitable cost of the free

market, according to Marx, was

the exploitation of workers and an

unfair distribution of wealth.

Key Terms

command economy: an economic system in which

the government makes all decisions on the three key

economic questions

socialism: a range of economic and political

systems based on the belief that wealth should be

distributed evenly throughout society

Market or Command Economy?

1.Read the excerpts from The Wealth of Nations and The

Communist Manifesto. Summarize each passage in your

own words.

2. Create two T-charts, each listing the costs and benefits

of both free market and command economies. List at least

five for each side.

3. Imagine you are an economist helping with the creation of a

new nation. Which economy should the nation adopt: a

totally free market economy or a strict command

economy? Why? Minimum five sentences. Refer to your cost-benefit

analysis.

Bell Ringer

# of countries with completely = 0

# of countries with total = 1

Therefore, all (functioning) economies are a …

Why do you think this is?

Introduction

What are the characteristics of a mixed economy?

A market-based economy with some government

intervention

Government helps societies meet needs that

would be too difficult for them to meet under a totally

free market economy… such as??

Government protects property rights and ensures

fair exchanges in the marketplace

Mixed Economy

Even free market thinkers like Adam

Smith recognized the need for a limited

degree of government involvement in

the economic marketplace.

In a mixed economy, the market is free

but has a certain degree of government

control.

Spectrum of Mixed Economies

Almost all modern economies are mixed

economies.

Privatization

Many former communist countries have moved closer to a mixed economy through privatization.

Privatization is the transfer of ownership from the government to private citizens.

China

China is moving closer to the center of the economic continuum

Over the past twenty years, China has gone through an economic transition through privatization of state-owned firms.

Privatization

Privatization in the U.S. has had mixed results.

Often, increased profits come with moral consequences:

For-Profit Charter Schools

Blackwater in Iraq

“Kids for Cash”

Key Terms

laissez faire: the doctrine that government generally should not intervene in the marketplace

mixed economy: a market-based economic system in which the government is involved to some extent

privatization: the process of selling businesses or services operated by the government to individual investors, and then allowing them to compete in the marketplace

Mixed Economy Flow Chart

Working in a small group,

create your own circular flow

chart for a firm (company or

service) of your choosing.

Follow the circular flow model

found on page 40 in the

textbook, plugging in details

for the firm that you chose. https://youtu.be/B43YEW2FvDs?t=5m37s