Section 5-1

Comparing Economic Systems

What is Economics?

• The social science that examines how societies use scarce resources to produce and distribute goods and services that satisfy peoples’ wants and needs.

• The study of choices about using resources.

Macro vs. Micro

• Macroeconomics: economics on a national and global scale and concerned with decisions made by governments.

• Microeconomics: focuses on economic decisions made by individual people and businesses.

The two are interrelated. As a consumer, you both affect the

national economy and are affected by it.

Economic System

• The way a society uses resources to satisfy its people’s needs and wants.

• Develop in response to the _______ of ______ resources.

Economic Resources- Things that you may use to reach your goals• Money• Time• Skills• Personal Energy• Community Agencies

Scarcity– the fundamental problem that all economic systems try to solve• A society cannot provide everything its people

want.

Opportunity Cost

• Because of limited resources – the value of the best alternative given up

Because of limited resources and the problem of scarcity, we have:

Three Basic Questions

1. What _____2. How _____3. Who ____

Types of Economic Systems

• Four Basic Types:– Theoretical• Traditional Economy• Command Economy• Market Economy

– Mixed Economy

Traditional (subsistence) Economy

• Decisions about what to produce, how and for whom are based on traditional customs and beliefs of the society

• Limited technological advancements• For example: people hunt, fish, farm and live

in the way their ancestors did• Rare but a few exist in _____, ________ areas

in various parts of the world.

Command (controlled) Economy

• Decisions about what to produce, how and for whom are decided by a central government

• Government leaders control all resources and make all decisions

• Can you think of a country in the past or present that are like this?

Market (capitalist) Economy

• Decisions about what to produce, how and for whom are decided by individual acting in their own self-interest

• Has free market for buyers and sellers and can be big like the stock market or small like a neighborhood car wash

Mixed Economy

• A combination of the command and market economic systems. – The idea of a free market with government

controls.– Most of the world’s economies fall into this

category but at different levels of each system. • Ex: US v. China

US Economic System

• The economic goals of the United States:– Growth: an increase in the amount of goods and

services produced over time– Efficiency: wide use of limited resources– Stability: a steady level of economic wellbeing,

without wild ups and downs– Justice: an economic system that treats citizens fairly– Security: support systems for citizens who face

economic hardship through no fault of their own

Fundamental Characteristics to the US Economy

• Private property:

• Freedom of choice:

• Freedom of enterprise:

• Limited government control:

Check Your Understanding:

• Each economic system must answer three questions. What are they?

• How does a command economy differ from a market economy?

• Describe three characteristics of the US economy.