2 Economic Systems - Weebly

1 CONCEPT REVIEWS carcity is the situation that exists when there are not enoughresources to meet human 2 KEY CONCEPTA neconomic system is the way in which a society uses its scarceresources to satisfy its people s unlimited THE CONCEPT MATTERSHow does a society decide the ways to use scarce resources to meetunlimited wants? Its Economic system determines what to produce,how to produce, and for whom to produce. Although every countrytoday uses a mixture of Economic Systems , some mixed systemsprovide more Economic and political freedom and create morewealth than CAPITA GDPPer capita GDPYear02,0004,0006,0008,00010,00012,000 14,00016,0001994 1998 1996 2002 2004 2000 Source: United Nations Statistics Division SOUTH KOREANORTH KOREAHow do the economies of North Koreaand South Korea compare?

2 See theCase Study on pages 64 SystemsSECTION 1 Introductionto EconomicSystemsSECTION 2 CommandEconomiesSECTION 3 MarketEconomiesSECTION 4 ModernEconomies in aGlobal AgeCASE STUDYC ontrastingEconomies:North Korea andSouth KoreaGo toANIMATED ECONOMICS forinteractive lessons on the graphs andtables in this at toINTERACTIVE REVIEW forconcept review and toECONOMICS UPDATE for chapterupdates and current news on theeconomies of North Korea and SouthKorea. (See Case Study, pp. 64 65.)EconomicSystems1 SECTION38 Chapter 2 OBJECTIVESKEY TERMSTAKING NOTESAs you read Section 1, completea cluster diagram that providesinformation on the different kindsof Economic Systems . Use theGraphic Organizer atInteractiveReview @ Section 1, you will identify the three main typesof Economic Systems understand how a traditionaleconomy operates,including its advantages anddisadvantages analyze how modern forcesare changing traditionaleconomieseconomic system ,p.

3 38traditional economy ,p. 38command economy ,p. 39market economy ,p. 39 Types of Economic SystemsKEY CONCEPTSIn his bookUtopia, 16th-century writer Thomas More describes a society withoutscarcity, where wants are limited and easily fulfilled. It is no accident, however, thatthe wordutopia means no place in Greek. In the real world, scarcity is a fact of address scarcity, societies must answer three questions: What should be produced? How should it be produced? For whom will it be produced?The answers to these questions shape the Economic system a society system is the way a society uses its scarce resources to satisfy its people sunlimited wants. There are three basic types of Economic Systems : traditional econ-omies, command economies, and market economies.

4 In this chapter you will learnabout these Economic Systems , as well as mixed economies that have features ofmore than one 1 Traditional EconomyAtraditional economy i s a n econom ic s y stem i n wh ich fa m i l ie s, cla ns, or t r ibe s ma keeconomic decisions based on customs and beliefs that have been handed down fromgeneration to generation. The one goal of these societies is survival. Everyone has aset role in this task. Men often are hunters and herders. Women tend the crops andraise children. The youngest help with everyday chores while learning the skills theywill need for their adult roles. There is no chance of deviating from this pattern. Thegood of the group always takes precedence over individual toEconomic SystemsAneconomic systemis the way a society usesresources to satisfy itspeople s is an eco-nomic system in whichpeople produce anddistribute goods accord-ing to customs handeddown from generation REFERENCEE conomicSystemtraditionaleconomyFind an update on issuesin a market economy SystemsTYPE 2 Command EconomyIn the second type of Economic system , acommand economy , the governmentdecides what goods and services will be produced, how they will be produced, andhow they will be distributed.

5 In a command economy , government officials con-sider the resources and needs of the country and allocate those resources accordingto their judgment. The wants of individual consumers are rarely considered. Thegovernment also usually owns the means of production all the resources and fac-tories. North Korea and Cuba are current examples of command economies. Beforethe collapse of communism in Europe, countries such as the Soviet Union, Poland,and East Germany also were command 3 Market EconomyThe third type of Economic system , amarket economy , is based on individual choice,not government directives. In other words, in this system consumers and producersdrive the economy . Consumers are free to spend their money as they wish, to enterinto business, or to sell their labor to whomever they want.

6 Producers decide whatgoods or services they will offer. They make choices about how to use their limitedresources to earn the most money a market economy , then, individuals act in their own self-interest when theymake Economic choices. However, as they seek to serve their own interests, theybenefit others. As a consumer, you choose to buy the products that best meet yourwants. However, this benefits the producers who make those products, because theyearn money from your purchases. As Adam Smith noted inThe Wealth of Nations(1776), when you make Economic decisions you act in your self-interest, but you are led by an invisible hand to promote the interests of Economic ConceptsA. How might Economic activities within a family with adults, teenagers, and youngchildren represent aspects of traditional, command, and market economies?

7 Acommand economyis an Economic system inwhich the governmentmakes all economyis an Economic system inwhich individual choiceand voluntary exchangedirect Economic REFERENCEC ommand Food was scarce andexpensive in this store in the formerSoviet Union, a command Advertisements, like thesebillboards in New York City, are acommon sight in a market The Kavango people ofNamibia use fishing techniques passeddown from generation to 2 Forces of ChangeThe useof the cell phone has broughtchanges to many traditionalAfrican ofTraditional EconomiesKEY CONCEPTSIn the earliest times, all societies had traditional economies. Such Systems serve themain purpose of traditional societies survival very well. The traditional eco-nomic system , however, tends to be inefficient and does not adapt to 1 Advantages and DisadvantagesThe one great advantage of a traditional economy is that it so clearly answers thethree Economic questions.

8 A traditional society produces what best ensures its sur-vival. The methods of production are the same as they have always been. Systems ofdistribution are also determined by custom and tradition. In a traditional economy ,then, there is little disagreement over Economic goals and economies have several major disadvantages, too. Because they arebased on ritual and custom, traditional economies resist change. Therefore, they areless productive than they might be if they adopted new approaches. Further, whiletraditionally defined roles eliminate conf lict, they also prevent people from doingthe jobs they want to do or are best suited to do. People who are in the wrong jobs are less productive. The lower productivity in traditional economies means thatpeople do not acquire the material wealth that people in other societies do.

9 As aresult, people in traditional economies have a much lower standard of 2 Under Pressure to ChangeAround the world, traditional economies are under pres-sure from the forces of change. The Kavango people ofNamibia in southern Africa, for example, have lived assubsistence farmers for centuries. (Subsistence farmersgrow just enough to feed their own families.) Modern tele-communications, however, have bombarded the Kavangowith images of the world beyond their homeland. As a result,many young Kavango want something more than the life ofsubsistence farming. Thousands have left their homeland forthe cities. Even the old ways of farming are beginning to vast majority of the Kavango people still make a livingfrom subsistence farming.

10 However, a few have turned tocommercial farming, where they grow crops not for theirown use, but for InferencesB. There are no pure traditional economiestoday. Why do you think this is so? is more important in a traditional economy , accumulatingindividual wealth or honoring tradition? Explain your are Economic decisions made in a command economy ? drives the choices of consumers and producers in a marketeconomy? Adam Smith s invisible hand also function in traditional andcommand economies? Explain your answer. 6. Using Your Notes What do the threekinds of Economic Systems have in common?Refer to your completed cluster the Graphic Organizer atInteractive Review @ 7. Drawing Conclusions How might strongly defined economicroles and goals be both a strength and a weakness of traditionaleconomies?