Week 2 Economic Systems

Week 2 Economic Systems

What is an economy?

•  Every country in the world has one.

•  An economy is the way in which people meet their needs through the production, distribution, and use of goods and services.

•  Goods are items that can be bought or sold (such as a car, computer, food, ect.).

•  A service is work people perform in exchange for money (lawn mowing service, car repair, ect.). 

Multiple Choice

Items that can be bought or sold

• Goods

• Service

Multiple Choice

If you pay a person to come and rake your grass you have paid for a ___________

• Good

• Service

How do economies grow? 

•  Economic growth is measured through the growth in the output of goods and services.

• Nations can improve their economies by trading with other nations.

•  Main factors that affect growth are human capital (people), capital goods (machines/equipment), entrepreneurs (people), and natural resources.

Key economic terms:

• Natural resources: Useful things found in nature (such as wood, coal, iron) that can be used to produce goods.

• Human capital: The quality of people working in an economy (also called labor).  

• Capital goods: Machines/technology/equipment used by a business to make goods. A company that makes sweatshirts needs the equipment to make the sweatshirts. This equipment would make up the capital goods of the factory.

•  Entrepreneur: A person who takes on the risk and possible reward or organizing and operating a new business.

Multiple Choice

What do entrepreneurs do?

• represent business at the capital

• make all the laws in regards to business

• start their own business, invent something new, or change the way something was previously done so that it works better

• work in politics with regards to foreign business

Multiple Choice

What does human capital mean?

• the place where the most people live within a country

• the place where the most work is performed within a country

• the people who perform labor (work)

• the building where most people work in a country or state

Multiple Choice

Which of the following is an example of a capital resource?

• Healers to heal people

• Cloth to make clothing

• Waterfalls to visit

• Milk from cows

Multiple Choice

Which of the following is a natural resource?

• sweaters

• doctors

• trees

• lightbulbs

Types of Economic Systems

• There are 2 main types: traditional & mixed

• There are 2 main types of mixed economies: command and market

Traditional Economy

•  Based on customs and traditions.

• People play a direct role in deciding what goods and services are needed for themselves and the community.

•  Some native groups in places like Amazon rainforest still have traditional economies.

•  Needs are met by hunting, fishing, gathering, and farming with little contact with the outside world.

Mixed Economy

•  Most economies in the world are mixed.

• All mixed economies are somewhere between a pure command economy and a pure market economy.

•  People are free to decide what to produce, how to produce it, and how much to produce but the government can set regulations for what to produce, how to produce it, how much to produce, etc.

•  Gov’t involvement is for ethical and safety reasons.

Command Economy

•  The government mostly regulates what goods and services are needed and how they will be produced. Heavy government control.

•  Consumers can choose which goods they want to use but little or no say in what actually gets produced.

•  No pure 100% command economies exist in the world today, only economies that are similar.

Market Economy

•  The government plays a much smaller role in a market economy than they do a command.

• There is much less government regulation in a market economy. People are free to exchange goods and services with less government involvement.

•  Pure 100% market economies (100%) do not exist in the world today.

Multiple Choice

Government makes all the economic decisions

• command

• market

• traditional

Multiple Choice

A 100% free market without government involvement doesn't really exist in the modern world.

• True

• False

Multiple Choice

A _________ economy is a market-based system in which the government is involved to some extent.

• Traditional

• Planned/command

• Mixed

• Free Market

Multiple Choice

A ______________ economy is guided primarily by custom, habit, and ritual.

• Traditional

• Planned/command

• Mixed

• Free Market

Multiple Choice

A mixed economy combines the parts of which other economies?

• Market and Command

• Traditional and Market

• Command and Traditional

• Socialism and Capitalism