economic lesson 3

Types of Economic Systems

Unlimited Needs and Wants

Limited Resources

Scarcity

Choices

Just as scarcity forces you to make choices, nations must also make choices in order to use their resources efficiently.

WHAT

toproduce

HOWto

produce

FOR WHOMto

produce

Choices

A nation’s responses to these questions are determined by its economic system.

Types of Economic Systems

Traditional Economy

Command Economy

Market Economy

If most of your answers were A…

Traditional Economy WHAT to produce?

HOW to produce?

For WHOM to produce?

Determined by tradition

Centered around traditional family and social units

If most of your answers were B…

Command Economy WHAT to produce?

HOW to produce?

For WHOM to produce?

Determined by government officials / “central planners”

If most of your answers were C…

Market Economy WHAT to produce?

HOW to produce?

For WHOM to produce?

Determined by individuals

This free exchange of goods and services is called the market

How does the market regulate economic activity?

No need for government regulation!

Guided by self-interest All individuals seek to fulfill

their own needs and wants

(Adam Smith) Self-interest benefits all of society by helping the economy grow.

How do you decide what choices are in your self-interest?

You respond to incentives!

Incentives: something that encourages you to behave in a certain way Rewards Penalties

Group Activity

The US economy is failing. Suppose California decides to secede from the United States and form its own country. You have been appointed to be a member of the council responsible for designing a new economic system. What kind of system should California adopt and why? Be sure

to answer the three economic questions: Who determines what, how and for whom to produce?

What are the advantages of your economic system? What are the disadvantages?

Feel free to mix and match components of the three different types of economic systems.

*Use vocabulary words from last week’s lessons.

Group Activity (cont.)

Groups of 4-5

All members must contribute! Writer (1 page minimum)

Underline key vocabulary words Artist Campaign manager

How to present the material Campaign slogan

Spokesperson