With a partner….• You will need a scratch piece of paper (half sheet)• Make a T-chart like the one below:• Create a list of the advantages and disadvantages if

STUDENTS (instead of teachers, deans, and principals) made all of the decisions for running the school including:– What rules the school will have– What classes you have to take– When your classes will be– How long you have for lunchAdvantages Disadvantages

Economic Systems

Why do we use capitalism in the United States?

Essential Economic Questions

Because we live in a world of scarcity, 3 essential decisions must be made by every country:1. What to produce– Should we make guns, or should we make cars?

2. How to produce it– Are humans going to make it, or should machines?

3. For whom are we producing it– Are we going to make this stuff for civilians, or the military?

Whoever gets to answer these questions determines what kind of economic system you have

Economic Spectrum

Amount of government

involvement in answering the 3

questions

Less More

Market Economy• Sometimes referred to as “capitalism”• The people (consumers and businesses) make the decisions

for the 3 economic questions– They do so in their best interest– Freedom of choice

• Advantages– Little to no government interference– Produces a wide variety of goods and services– Decision making is decentralized

• No need for a massive central authority to make all of the economic decisions

• Disadvantages– Doesn’t always provide for the needs of everyone– High degree of fluctuation (ups and downs)

Command Economy

• Sometimes referred to as “socialism” or “communism”• The government makes the decisions for the 3 economic

questions– Government usually controls most or all economic resources

• Advantages– Potential for everyone to have their needs taken care of– No unemployment (theoretically)

• Disadvantages– Decision making tends to be slow

• The government has to make millions of economic decisions

– Poor decision making leads to needs being unmet– Discourages individual motivation

Mixed Economies

• Fall somewhere between market and command– The US technically has a mixed economy, though it

is very much on the “market” side of the spectrum

Quick Review

1. Every country must answer the 3 economic questions (What, How, and For Whom). Why?– Because everyone lives in world with scarce resources

2. How can we tell what type of economic system a country uses?– By who makes the decisions for the 3 economic

questions

3. Between a market and command economy, which one gives the decision making power to the people?– Market

Why this is important to you…

• What would your life be like if the US had a command economy?– We’ll find out in our activity….

• Make your groups• Decide as a group if you want to read Ludmilla or Lena’s story• Questions to answer after you read your selection:

1. What incentives do U.S. businesses and workers have to encourage them to do a good job that were not present in the Soviet system?

2. What are some other ways in which the Soviet economic system was different from the U.S. economic system? Give examples