Lesson 2.1

​​Essential Question

​​How does an economic system help a society deal with the fundamental problem of scarcity?

​Students will be able to:

• Determine how each type of economic system questions of WHAT, HOW and FOR WHOM to produce.

• Explain the advantages and disadvantages of each economic system.

• Identify the relationship between wages and individual incentives in each of the economies.

​Traditional Economy

​Economy where activity stems form ritual, habit or custom. Individuals are generally not free to make decisions on the basis of what they want or would like to have. Instead, their roles are defined by the customs of their elders and ancestors.

​Mbuti of Central Africa

​Aborigines of Australia

​Inuit of Nunavut (Western Canada)

​Traditional Economy

​Advantages
WHAT - Everyone know their role.
If you were born into a family of hunters...you hunt (farmers...you farm).
HOW - the same way your parents did.
FOR WHOM - the community (Shared)

​Disadvantages
Discourages new ideas...no growth.

It creates a lower standard of living for all.

Must compete with other groups for scarce resources.

​Command Economy
(also known as a "Planned Economy")

​An economy in which a central authority makes the major decisions about WHAT, HOW and FOR WHOM to produce. A Command Economy can be headed by a king, a dictator, a president, a tribal leader, or anyone else who makes the major economic decisions.

​In a pure Command Economy, the central governing authority makes all of the major economic decisions. They decide WHAT, HOW & FOR WHOM is produced...from foods to housing to transportation. Because the Central Authority controls all business, no competition exists.

​A modern, and somewhat more liberal, version of the Command Economy is Socialism : an economic and political system in which the government own some, but not all, of the factors of production.

​

​Command Economy
(also known as a "Planned Economy")

​Market Economy

​A Market is an arrangement where buyers and sellers interact to determine the prices and quantities of goods and services. A market might be in a physical location (farmer's market), or on a website (such as Amazon). Regardless of its form, a market can exist as long as a mechanism is in place for buyers and sellers to interact.

​A Market Economy is one in which the WHAT, HOW, & FOR WHOM questions are primarily answered buy people who make supply and demand decisions in their own best interests.

​

​Market Economy

​What the Markets Look Like on a Continuum

​Command/

​Dun!!!