Chapter Two: Economic Systems & Decision Making

Warm Up Question:(write answer in notebook with today’s date)

What are the Three Basic Questions of Economics?

Unit I: Basic Principles of Economics

• What do we call the place where buyers and sellers come together?

• This concept is a vital aspect to our economic system. It allows the free exchange of g&s and the producers and consumers have the power.

Unit I: Basic Principles of Economics

• ECONOMIC SYSTEM: an organized process to DECIDE how to use SCARCE RESOURCES to satisfy needs and wants.

• 3 Types of Economic Systems:1. TRADITIONAL Economy:2. COMMAND Economy:3. MARKET Economy:

What do each of these words

mean to you? Brainstorm with

group

Move to a clean sheet in notebook:we need to make a tableECONOMIC SYSTEMS

headin

gMARKET COMMAND TRADITIONAL

Make it for the whole page; we will add in the rows as we go along together and then in groups!!

Unit I: Basic Principles of Economics

MARKET Economy

Command Economy

TRAD-ITIONAL Economy

The past dictates, customs decide

Gov’t Decide

s

Consumers &

Producers decide

WHO answers the

3 BASIC QUESTIONS?

Unit I: Basic Principles of Economics

MARKET Economy

Command Economy

TRAD-ITIONAL Economy

Inuit (Eskimo), Aboriginal (Australia), African & Amish Villages

Cuba, China, N.Kore

a

USA, Canada, Japan,

most of Europe

WHERE do these

systems exist in the

world?

Unit I: Basic Principles of Economics

MARKET Economy

Command Economy

TRAD-ITIONAL Economy

ADVANTAGES

Split Rest of Table for 2 last rows

DIS-ADVANTAGES

PAGE 33

Traditional Economy

Advantages

•Always KNOW ROLE in society•STABLE and predictable life•BASIC NEEDS provided

Dis-advantages

•LOWER STANDARD of living•WANTS are not met•NEW IDEAS discouraged•LACK of progress, NO CHANGE

Command Economy

Advantages

•Always KNOW ROLE in society•Capable of DRAMATIC change•BASIC NEEDS provided

Dis-advantages

•Has LITTLE FLEXIBILITY to deal with small day-to-day changes•NEW IDEAS discouraged•Requires large GOVERNMENT•WANTS are not met•NO INCENTIVES to get people to work

Market Economy

Advantages

•Decentralized decision making; bottom up•Able to ADJUST TO CHANGE gradually•Incredible VARIETY of g&s; many choices•Lots of FREEDOM & CHOICE (jobs, g&s)•LACK of GOVERNMENT interference

•High degree of CONSUMER SATISFACTION

Dis-advantages

•People face UNCERTAINTY & FAILURE•Does not meet NEEDS of PEOPLE (homeless, hungry, uneducated)•Rewards only productive resources•Must guard against market failure

Group Activity ~ Relay

• Can you decipher what the advantages and disadvantages of each of these systems would be?

• Let’s see if you can work through it!!