Economics

.
Standard: SS6E4 Analyze different
economic systems

Element: a. Compare how traditional,

command, and market economics
answer the economic questions of 1 –
what to produce, 2 – how to produce,
and 3 – for whom to produce.
 What, How, Who

Every country must develop an economic

system to determine how to use its
limited resources to answer the three
basic economic questions.
• What goods and services will be
produced?
• How will goods and services be
produced?
• Who will consume the goods and
services?
 Traditional
Economy

Traditional economy is an economic model

governed by custom, habit, and family
history.
The customs and habits of the past are
used to decide what and how goods will be
produced, distributed, and consumed.
• What your parents did, you will too!
Hunters
Gatherers
Farmers
Most traditional economies on
Earth require their citizens to
produce only what is necessary
for personal use/survival. This
is known as subsistence.

Rather than using money,

traditional economies use a
system of bartering. Bartering
is a system of exchange
whereby one good/service is
given in return for another;
bartering does not require
monetary exchange.
 Pros Cons
Never unclear of your Never able to do
future (you always anything different
know what you will do than the job your
as a job) parents had.

Usually in very poor

Usually Stress-free
countries. (Third
World Countries)
 Command Economy

Command economy is an economic model wherein

government planers make all business and financial
decisions.

• Government make the basic economic decisions.

 Government determines which goods and services to
produce.
 Government determines how to produce goods and
services.
 Government determines who will produce the goods
and services.
 A
The government sets specific
production quota’s for
miscalculation
businesses. A production in production
quota is a required amount of quota could
specific good that must be mean that
produced in a given many citizens
timeframe. go without
food or
The problem with production water!!!
quota’s is when the
government miss calculates
the needs of its citizens. When
this happened the citizens
suffer.
 Pros Cons
Not to hard - you do Sometimes the
what you are told to government is
do. unable to accurately
predict what goods
people will need.

This could lead to

shortages in the
economy.
 Market Economy

Market economy is an
economic model used by
governments to determine
what should be
produced/provided in terms of
goods and services, how, and
for whom.

• Decisions are guided by

changes in prices that occur
between individual buyers
and sellers in the
marketplace.
• Also known as free
enterprise, capitalism, and
laissez-faire.
 Pros Cons
Consumers can usually When shortages in
find the goods they supply occur, prices
want. go up.
Free to earn as much
money as they are able
to in order to buy the
goods and services
they want.
In a market economy supply and demand states the amount of
goods and services that are available for people to buy compared
to the amount of goods and services that people want to buy.

If there is less of a product than the public wants is produced, the

law of supply and demand says that more can be charged for the
product.
To make things simple, if there is a demand
for something and the supply is not plentiful,
the price of that product will go up because
of the demand.

People are willing to pay more for the

product.
The opposite of this is true as well. If there is
something not in demand, the price of this item
will go down because the demand is not there.
Supply and demand raises the price of perishable
goods too. Grocery store prices fluctuate (vary)
depending on the supply farmers are able to yield
from their farms.

Dairy, eggs, meat, and vegetable all vary in price due

to their supply. If there is not much to sell, prices go
up dramatically.
Standard: SS6E4 Analyze different
economic systems.

Element: b. Explain that countries

have mixed economic system
located on a continuum between
pure market and pure command.
 Mixed Economy
There are no pure
command or market
economies.
All modern
economies have
characteristics of
both systems and are
often referred to as a
mixed economy.
The primary differences in market and command
economies lie in the division of labor or factors
of production and the mechanisms that
determine prices.

In a market economy In a command economy

the people set prices. the government set prices.
 The activity in a market economy is unplanned;
it is not organized by any central authority
(government) but is determined by the supply
and demand of goods and services.

Products and prices are determined by the people. If

products are good or necessary, demand will be there.
 Mixed Economy
Since private businesses sell goods and services they
see that the people want, it is said that the people are
in control of the demand for items or services. If the
demand surpasses the supply the price will naturally
go up.

A private business is selling firewood for $50 bucks a truck load. The
supplier cannot keep up with the demand at that price so the price is
raised to $100 a truck load. Because the demand was there and the
supply was not, the prices went up.
The activity in a command economy is planned; it is
organized by a central authority (government) that
tried there best to predict the needs of its people.

When the government miscalculates those needs, the people suffer.

Food shortages are

common in Command
economies.
The United States,
Canada, and Mexico
are all examples of
market economies, as
are most developed,
democratic nations.
Since decision-making is centralized in a command
economy, the government controls all of the supply
and sets all of the demand. Prices cannot arise
naturally like in a market economy, so prices in the
economy must be set by government officials.

Example

Government says to change $3 a

gallon for milk, the farmers have to
charge $3 a gallon regardless of how
much they need to make a profit.
Alternatively, a command economy is
organized by government officials who
also own and direct the factors of
production. Cuba is an example of a
command economy.
No country on Earth can have a pure command economy because
that would mean the government would own all civil liberties.
The government would basically own the people from cradle to
grave.

Government would control births, deaths, jobs, education,

activities, etc.
No country on Earth can have a pure command economy because
that would mean there would be no government authority what so
ever.

There would be no money, no highways, no laws. This would be the

literal definition of anarchy.
Majority of all
countries are mixed.
While no countries are
at the end of the
continuum, some are
closer than others
depending on the 3
basic economic
questions.

What to produce
How to produce
Whom to produce
If government determines “what” a country produces it may lean toward the
command side.

If government determines “how” to produce it may lean toward the command

side.

If government determines “whom” to produce it may lean toward the

command side.
If people determines “what” a country produces it may lean toward
the market side.

If people determines “how” to produce it may lean toward the market

side.

If people determines “whom” to produce it may lean toward the

market side.
 Standard: SS6E4 Analyze
different economic systems.

Element: c. Describe the

economic system of Canada.
 Canada’s Economy

The economy of Canada may be described as mostly market-leaning.

Since no country on Earth is a pure command we say Canada has a
mixed economy. Canada’s economy is 79 percent free and 21 percent
command. Canada’s government strongly protects business and
property rights.

Canada’s citizens do not have to worry about

government take over of businesses and the
courts are very protective of private
businesses which are essential for
entrepreneurs.
Starting a new business in
Canada is also relatively simple.
The nation’s business sector is
thriving due in large part to
economic cooperation among
Canada and its NAFTA trading
partners – the United States and
Mexico.
Canada is
one of the
Canada
fastest has the
7th largest
countries economy.

on Earth
to start a
business.
 All three countries involved in NAFTA (Canada, Mexico, and
United States) benefit from being able to trade with their
neighbors without having to pay taxes. This saves each country
millions of dollars a year and further helps GDP.

Imports from U.S.