EconomicsGrade 6 Social Studies

East Cobb Middle School

Flip Book Companion

2016 - 2017

Traditional, Command, & Market

Scarcity is the Root of Economics

• There is not a single country in the world that has an

abundance of all the resources that its people

need/want.

•Scarcity = the limited supply of something

• Because of this, countries must make a plan of how

to use these limited resources.

• This “plan” is called an…

*Economic System! – an economic model used

by governments to determine what should be produced/provided in

terms of goods and services, how, and for whom

Three Little Questions

• When developing the economic plan, each country must ask

three basic economic questions:

1. What goods/services will be produced?

2. How will goods/services be produced?

3. Who will consume the goods/services?

The way a country answers these questions determines what

kind of economic system it will have:

Traditional Command Market

Traditional Economy

*An economic model governed by custom, habit, and history

•All economic decisions are based on customs, traditions, &

beliefs of the past.

•People will make what they always made & do the same

things their parents did.

•The exchange of goods is done through bartering.

•Bartering = trading without using money

•Some Examples: Amish, villages in Africa & South America, the

Inuit in Canada, Aborigines in Australia

Traditional Economy

Let’s see how a traditional economy fits in with the 3

economic questions…

1. What goods/services will be produced?• People follow tradition & make what their

ancestors made.

3. How will goods/services be produced?• People produce goods the same way that

their ancestors did.

4. Who will consume the goods/services?• People in the village who need them.

Command Economy

*An economic model wherein all economic

decisions are made by the Government.

•The government owns most of the property,

sets the prices of goods, determines the wages

of workers, plans what will be

made…everything.

•This system has not been very successful.

More and more countries are abandoning it.

Command Economy

• This system is very harsh to live under;

because of this, there are no PURE command

countries in the world today.

•Some countries are close: Cuba, former Soviet

Union, North Korea, former East Germany, etc.

•All of these countries have the same type of

government: Communist! The government is in

control of everything.

Command Economy

Let’s see how a command economy fits in with

the 3 economic questions…

1. What goods/services will be produced?• Government decides what will be produced.

2. How will goods/services be produced?• Government decides how to make them.

3. Who will consume the goods/services?

• Whoever the government decides to give them to.

Market Economy(Capitalist)

*An economic model which the laws of supply and demand

(not government oversight) determine what is

produced/consumed and at what cost

•Private citizens make economic decisions based on supply and demand.

•Supply and Demand - So we have supply, which is how much of something

you have, and demand, which is how much of something people want. Put the

two together, and you have supply and demand.

– The price of something will go up if the demand goes up. Why?

Because the seller thinks he or she can get more money for whatever

he or she is selling.

– In the same way, the price will go down when the demand goes down..

Market Economy(Capitalism)

•Free enterprise helps make these decisions.

•Free Enterprise = competition between

companies (shifts prices of goods/services)

• The government has no control over the

economy; private citizens answer all economic

questions.

Market Economy(Capitalism)

Let’s see how a command economy fits in with the 3

economic questions…

1. What goods/services will be produced?• Businesses (owned by private citizens) based

decisions on supply & demand and free

enterprise. (AKA $!)

2. How will goods/services be produced?• Businesses (owned by private citizens)

3. Who will consume the goods/services?• Consumers

Market Economy

• In a truly free market economy, the government would not

be involved at all. Scary…

•There would be no laws to make sure goods/services

were safe. *Food! Medicine!

•There would be no laws to protect workers from unfair

bosses.

•Because of this, there are no PURE market economies, but

some countries are closer than others.

• Some Examples: US, UK, Australia, etc.

Hmmmm . . . •Since there are no countries that are purely

command or purely market, what does that make

them? Comket? Markmand?

•Ha! Most democratic countries have some

characteristics of both systems, so we keep it

simple and call them:

•Of course, most countries’ economies are closer

to one type of system than another…

Mixed!

Mixed Economy

•Mixed Economy!

term used to describe the market/command blending of all modern world economies

command Market

Cuba

The Economic Continuum

W

command Market

Cuba

All of the following countries have a “Mixed Economy.” Where do you think these countries would go on the Economic Continuum? Australia, Germany, Russia, UK, USA

The Economic Continuum

Command Market

Cuba USUKGermanyRussia Australia

All of the following countries have a “Mixed Economy.” Where do you think these countries would go on the Economic Continuum? Australia, Germany, Russia, UK, USA

Natural Resources, Human Capital, Capital Goods, & Entrepreneurship

• There are 4 factors of production that influence economic

growth within a country:

1. Natural Resources available

2. Investment in Human Capital

3. Investment in Capital Goods

4. Entrepreneurship

• The presence or absence of these 4 factors determine the

country’s Gross Domestic Product (GDP) for the year.

• GDP is the total value of all the goods and

services produced in that country in one year.

• It measures how rich or poor a country is.

• It shows if the country’s economy is getting better

or worse – the health of a country.

• Raising the GDP of a country can improve the

country’s standard of living.

• All of the things found in or on the earth; “gifts

of nature”.

• All resources are limited.

• Examples: land, water, sun, plants, time, air,

minerals, oil, etc.

• Important to countries: without them, countries

must import the resources they need (costly)

• A country is better off if it can use its own

resources to supply the needs of its people.

• If a country has many natural resources, it can

trade or sell them to other countries.

THE WORKERS• This is all of the skills, talents, education, abilities, and health

of people who perform labor---and the value that they bring to the marketplace – The skill people possess.

• Examples: computer/reading/writing/math skills, talents in music/sports/acting, ability to follow directions, ability to serve as group leader & cooperate with group members

• A country’s Literacy Rate impacts Human Capital

• A literate person is one who can read and write in his/her

native language.

• Being literate is a major factor in whether a person

can get a job and be successful in the workplace.

• Literacy rate is the percentage of a country’s population

over the age of 15 that can read and write.

• The United States has a very high literacy rate.

• About 99% of Americans are literate.

• Countries with high literacy rates are generally wealthier.• They can compete in the world economy.

• Having a high literacy rate is important to the success of the people in a country.

• People who can read get better jobs, earn more money, and can afford to buy better things.• They can afford housing, food, healthcare, &

clothing for their families.

• The standard of living (economic level of the

people in the country) is often higher in countries

where the literacy rate is high.

High Literacy Rate = High Standard of

Living

• Nations that invest in the health, education, & training

of their people will have a more valuable workforce

that produces more goods & services.

• People that have training are more likely to contribute

to technological advances, which leads to finding better

uses of natural resources & producing more goods.

• This is all of the goods that are produced in the country and

then used to make other goods & services – “the items that

people need to perform their jobs”

• Examples: tools, equipment, factories, technology,

computers, lumber, machinery, etc.

• What are some capital goods used in our classroom?

• The more capital goods a country has, the more goods & services they

are able to produce.

• If a business is to be successful, it cannot let its equipment break

down or have its buildings fall apart.

• New technology can help a business produce more goods for a cheaper

price.

• Money is NOT a capital good, but rather a medium of exchange!

• People who provide the money to start and operate a business

are called entrepreneurs.

• These people with new ideas risk their own money and time

to create a good or service because they believe their business

ideas will make a profit. (i.e. small business, Bill Gates, etc)

• They bring together natural, human, and capital resources to

produce foods or services to be provided by their businesses.

• Entrepreneurs have 2 characteristics that make them different from the

rest of the labor force:

• 1. innovative (have creative ideas)

• 2. risk taker (use limited resources in an innovative way in hopes that

people will buy the product)

• It can be several things:

• Starting your own business

• Inventing something new

• Changing the way something was previously done so that it works

better

• Entrepreneurship creates jobs and lessens unemployment.

• It encourages people to take risks, and in doing so, they’ve created better healthcare, education, & welfare programs.

• The more entrepreneurs a country has, the higher the country’s GDP will be.

(GDP)

• Economic growth in a country is measured by the country’s Gross Domestic

Product (GDP) in one year.

o It measures the goods and services produced domestically (within a nation) in

one year.

o This doesn’t include products that are imported-Only products originating in

one’s own country.

o It is much better for the economy of a country to produce its own goods and

services (this increases the country’s GDP).

• GDP Per Capita refers to the average annual income of a nation’s citizens – How

much the people earn rom their jobs.

Measuring the GDP each year can:

Compare one country’s economy to another

Check a country’s economic progress over time

Show if the economy is growing or not

• The higher a country’s GDP, the better standard of living for

the people within the country.

• In order for a country to have an increasing GDP, it must

invest in human capital through education & training, and it

must produce goods that have value to be sold within the

country or exported – How a country manages it’s resources

(Natural, human capital, capital goods, entrepreneurship)

makes a big difference in the strength of its economy.

• To encourage economic growth and raise the living standards of its

citizens, there must be investment in human capital and capital goods.

• Economic growth is measured by increases in GDP over time.

• How large a nation’s GDP can be is determined by the availability and

quality of its natural, human, and capital resources.

• To increase economic growth and GDP over time requires investments

in both capital (factories, machines) and human capital (education,

training, skills of labor force).

• Specialization is when an individual or a company specializes in doing one part of a task, and relies on others to complete the other parts.

Specialization in LaborA division of labor occurs when the production of a good is broken down into numerous separate tasks with different workers performing each task.

Specialization within a countryWithin a single country, different regions specialize in certain economic activities. A country’s specializations are shown by its exports. The exports are the goods and services it produces and sells abroad.

Specialization is the key to trade. This is true in a town or around the world. A specialist may supply a service, such as fixing a TV, or a product, such as shirts. The specialist is paid for his or her services or the product he or she produces. He or she then uses the money to buy goods and service from those who specialize in other things. Benefits of SpecializationSpecialization allows for

• greater production.

• higher living standards than otherwise possible.

• the ability to produce a good or service using fewer resources than other producers use

o the ability of one country to produce a produce more efficiently than another country• If a country can make more of a specific product than another country, it has an absolute advantage

in trade.

Tariff, Quota, & Embargo

$ The voluntary exchange of goods and services among people and countries.

$Trade and voluntary exchange occur when buyers & sellers freely and willingly engage in market transactions

$ When trade is voluntary and non-fraudulent, both parties benefit and are better off after the trade than they were before the trade.

(1)This involves the exchange of goods or services

between countries.

• International trade is described in terms of:

o Exports: the goods and services sold to other

countries

o Imports: the goods or services bought from other

countries

• Countries trade goods because no country has all the

resources necessary to efficiently produce everything its

people need.

Nations can trade freely with each other or there are trade barriers.

(2) Free Trade: Nothing hinders or gets in the way from two nations trading with each other.

Trade Barriers: Hinders trade - trade barriers keep products from being bought and sold between countries

$ Sometimes countries complain about trade. They say that too much trade cause workers to lose jobs. Therefore, countries sometimes try to restrict trade by creating trade barriers because they want to produce and sell their own goods

Should Countries Create Trade Barriers That Limit Trade?

$ It is true that some workers in certain industries may be hurt by trade.

For example, some US clothing workers have had to change jobs during the past 30 years because many clothes are now imported from other countries like China

$ However, this trade allows people in the US to buy quality clothing imports at good prices, which results in a higher standard of living for people in the US and for our trading partners.For this reason, most economists agree that it is good to let countries trade as much as possible.

• (2) Natural barriers can slow down trade between nations by making

it harder and more expensive to move goods from place to place.

• Example: The Swiss Alps make it difficult for northern Italy to

trade with Switzerland. The countries are building tunnels

through the mountains to help make trade easier.

• Example: The Sahara Desert makes it extremely hard for

countries in Northern Africa to trade with the rest of the

continent.

Trade barriers keep products from being bought and sold

between countries.

They hinder (stop or slow down) global trade.

• There are 5 major types of economic trade barriers:

1. Tariff 4. Boycott

2. Quota 5. Sanction

3. Embargo

**Most barriers to trade are designed to prevent imports from

entering a country. – Why?

• A tariff is a tax put on goods imported from other countries – coming into your country!

• The effect of a tariff is to raise the price of the imported product.

How does a Tariff impact your economy?• It makes imported goods more expensive so that

people are more likely to purchase lower-priced items produced domestically.

• Tariffs are taxes charged for goods that leave or enter a country.• In order to get a product from another country, you

have to pay extra for it.• It is the same concept as sales tax that is put on items

your purchase at the store.

• Think of how many goods the United States imports. • How do you think tariffs might affect the economy?• How do you think this affects world trade?

**EXAMPLE: The European Union removes tariffs between member nations, and imposes tariffs on nonmembers.

**NAFTA, the North American Free Trade Agreement, allows free trade (no tariffs or quotas) between Mexico, Canada, and the United States.

• A quota is a limit on the amount of a good that can be imported into

country – “No, No, No you can only send1000 Beanie Babies into my

country!”

Example: A country might limit the amount of cars imported from

other countries to 500,000 per year.

• Putting a quota on a good creates a shortage, which causes the price of the good to rise and makes the imported goods less attractive for buyers. This encourages people to buy domestic products, rather than foreign goods.

How does a Quota impact your economy?

Quotas encourage people to buy domestic products, rather than foreign goods

(boosts country’s economy) – “Now they will buy my Beanie Babies instead of

those from Yugoslavia, this will increase my business and improve my

countries economy!”

EXAMPLE: Brazil put a quota on foreign made shoes to 10,000,000 pairs a year. Brazilians buy 200,000,000 pairs of shoes each year.

• What do you think happens when the country reaches the import limit?

Where will the rest of the shoes come from?

If Brazilians buy 200,000,000 pairs of shoes each year and they’ve only imported 10,000,000 – there is a shortage that must be filled

SOthis would leave most of the shoe market to Brazilian producers – the rest of the shoes needed will be made right in Brazil

• How do you think this quota impacts the country’s economy?

MO, MONEY! For the Brazilian shoe makers and for the Brazilian economy

A government order which completely prohibits trade with another country. one

country completely refuses to trade with another country.

• The government orders a complete ban on trade with another country.• Example – The US had an embargo with South Africa during

apartheid.

• Example – The US has an embargo with Cuba that has lasted over 50 years.

Breaking news the United States and Cuba are beginning to trade again.

• The embargo is the harshest type of trade barrier and is usually enacted for political purposes to hurt a country economically.

*The act of economically punishing another nation

• What does it mean to put Sanctions on a country?

A sanction is a penalty imposed on another country. It is an instrument

of foreign policy and economic pressure to try and convince a country to do (or stop doing) what you want.

A Sanction can be described as a sort carrot-and-stick approach to dealing with international trade and politics - reward and punishment to induce a desired behavior.

* Voluntarily and intentionally not from buying or dealing with a country as an expression of protest

Boycotts are usually for social, political, or environmental reasons. ... Sometimes, a boycott can be a form of consumer activism, sometimes called moral

i.e: The Montgomery Bus Boycott, was a political and social protest campaign against the policy of racial segregation on the public transit system of Montgomery, Alabama.

• Trade barriers provide many benefits:• They protect homeland industries from competition.• They protect jobs.• They help provide extra income for the government. • They increase the number of goods people can choose

from.• They decreases the costs of these goods through

increased competition.

• Tariffs increase the price of imported goods.

• The tax on imported goods is passed along to the

consumer so the price of imported goods are higher.

• Less competition from world markets means there is an

increase in the price of goods.

• With quotas, there is a smaller variety of goods

available for consumers to choose from.

*Specialization is the opposite of a trade barrier.

*Specialization encourages trade.

*When a country specializes in creating one type

of product, they must trade with other countries

to get the other products they need.

SpecializationSpecialize in producing the goods and services that

are native to their part of the world, and they trade for

other goods and services.

*Specialization is the opposite of a trade barrier.

*Specialization encourages trade.

*When a country specializes in creating one type

of product, they must trade with other countries

to get the other products they need.

1.Eurozone – European Union member nations who use the

euro as their common currency

2.Brexit – 2016 referendum whereupon a majority of British

citizens voted for the U.K. to withdraw from the European

Union; Brexit is a contracted form of “British exit [from the

E.U.]”

3.European Union – economic and political union of 28

European nations

*The European Union (EU) is a group of 28 countries that operate as a cohesive economic and political block.

*Eurozone – European Union member nations who use the euro as their common currency

- 19of the countries use the euro as their official currency.

•Member countries can choose to give up their own currency and exchange them for euros.

–French francs and German marks have been replaced by the euro

•12 countries in the EU do not use the euro•United Kingdom has decided to continue to use the British pound

Purpose of the European UnionFor its members to work together for advantages that would be out of their reach if each were working aloneBelieve that when countries work together they are a more powerful force in the world because they involve: More money More people More land area Free trade among members

Benefits of the EUThis helps make small countries more competitive in the world market…

Members may use a common currency (euro) that makes trade easier

EU works to improve trade, education, farming, & industry among its members 1. No tariffs (taxes) among member countries – free trade

zone 2. Citizens of one country can move freely to another country 3. Citizens can live and work in any other EU nation

Citizens can vote in local elections even if they aren’t citizens of the country

There are several countries that are NOT EU members, including Turkey, Switzerland, Iceland, & Russia

WHY? Turkey’s culture (98% Muslim), stability, and location to the Middle

East causes some EU members to not want Turkey to join

Switzerland has one of the world’s highest standards of living and prefers its economy to not be regulated under the EU

The EU has strict limits on the fishing industry, and Iceland does not want the EU’s control on its most important economic activity

Russia prefers to be an independent world leader over its resources and economy

European Union Members

•AustriaBelgiumBulgariaCyprusCzech RepublicDenmarkEstonia

FinlandFranceGermanyGreeceHungaryIrelandItaly

LatviaLithuaniaLuxembourgMaltaNetherlandsPolandPortugal

RomaniaSlovakiaSloveniaSpainSwedenUnited Kingdom

Brexit• 2016 referendum whereupon a majority of British

citizens voted for the U.K. to withdraw from the European Union; Brexit is a contracted form of “British exit [from the E.U.]”

• The people of the United Kingdom gave their answer in a June 2016 referendum, shocking the world by voting to leave the bloc they'd joined in 1973. The way many Britons saw it, the EU was expensive, out of touch and a source of uncontrolled immigration. They chose what's become known as Brexit

*currency – a nation’s money

• In order for countries in Europe to trade, a system of currency exchange must exist –currency exchange is converting one nation’s money into an equivalent value/quantity of another’s

• Exchange rates are used to determine how much one nation’s currency is worth in terms of another’s. (e.g., 1.00 U.S. dollar ≈ 0.96 Euro)

• This is due to the fact that there are some two dozen unique currencies in use in Europe today. Hungary uses the forint. Poland uses the złoty, Sweden uses the Krona, Russia uses the ruble , and Ukraine uses the hryvnia just to name a few.

• Euro – The common currency of most European Union states.

• Without a method to convert monetary values between disparate currencies, international trade would be impossible

*currency – a nation’s money

• $2.00 = 3.43 German (German Marks)• The German Mark (DEM), also known as the Deutsche Mark, was the official currency of

Germany. It was replaced by the Euro in 1999. Deutsche Mark banknotes and coins stayed in circulation until 2002. The Deutsche Bundesbank guaranteed indefinite exchange of German Mark cash to Euros.

• $2.00 = 1.40 UK (British Pound)• The most notable member of the European Union that has elected not to use the euro.

Rather, the United Kingdom uses the pound sterling as its national currency.

• $2.00 = 111.73 Russia (Russian Ruble)• The exchange rate is 30 roubles to 1 US dollar, 35 Rubles to 1 Euro, and about 50 Rubles to 1

pound sterling. It's not legal to use US dollars or Euro for transactions in Russia.

How It Impacts the Standard of Living

• A literate person is one who can read and write.

• Being literate is a major factor in whether a person

can get a job and be successful in the workplace.

• Literacy rate is the percentage of a country’s population

over the age of 15 that can read and write.

• The United States has a very high literacy rate.

• About 99% of Americans are literate.

• Countries with high literacy rates are generally wealthier.• They can compete in the world economy.

• Having a high literacy rate is important to the success of the people in a country.

• People who can read get better jobs, earn more money, and can afford to buy better things.• They can afford housing, food, healthcare, &

clothing for their families.

• The standard of living (economic level of the

people in the country) is often higher in countries

where the literacy rate is high.

High Literacy Rate = High Standard of

Living

• This measures how well-off the people are in a

country.

• Housing, food, health care, educational

opportunities, and income can be part of the

standard of living.

• Basically: what it costs a family to live

• Having basic reading & writing skills is very important.

• Without skills, workers are stuck in the lowest-paying jobs.

• A cycle of poverty can develop when people cannot get an

education.

• Illiterate people are forced to get low-paying jobs, so they cannot

get enough money to pay for their children’s education…This

cycle can continue for generations.

• The standard of living remains low for these families because

their education level is low.

• Without the skills of reading and writing, workers

cannot get better jobs.

• Developing countries are poor, and their people are

generally uneducated.

• It is difficult to pay for education, when there is

little money for food…

• The goal of every country is to have a 100% literacy rate

among its people.

• One reason that many people cannot read/write is that

their communities cannot afford to pay for teachers or

schools.

• Many governments, missionaries, & aid groups come to

the poorest countries to assist the people in educating

their children

• Most European countries have high literacy rates.

• Many European countries are industrialized—they

depend on manufacturing rather than farming for their

wealth.

• The increased wealth allows these countries to provide

better education and health care.

• The standard of living is also high.

• The literacy rate of both countries is nearly 100%.

• Both countries have made large investments in

human capital.

• The workforce is very well trained and educated.

• This has helped the standard of living in these

countries improve over time.

• Russia has the most poverty of these 3 European

countries.

• In the former Soviet Union, the government assigned

everyone a job.

• Today, workers must show that they are skilled &

valuable to the business in order to keep their jobs.

• Russia’s government is now spending large amounts of

money to train workers & educate youth so that they

have more opportunities to be successful in the economy.