Economic systems are the methods used by societies to produce and distribute goods and services. There are four main types of economic systems: traditional, command, market, and mixed. Traditional economies rely on customs and habits, command economies involve central government planning, and market economies use voluntary exchange. Most modern nations have mixed economies that incorporate both government intervention and market forces.

1. Economic Systems
Modified by A. Reyes
Sources: K. Clark-Yamamoto
Economics: Principles in Action
Lesson 16 from School Improvement in Maryland

2. Agree or Disagree
● There are unlimited resources to satisfy our needs.
● Scarcity is about the needs we have as individuals and
as a society.
● Scarcity is the number one economic problem.
● Eliminating poverty will eliminate scarcity.
● Because scarcity exists, choices need to be made.
● Shortages can be temporary or long-term but scarcity is
forever.
● Different economic systems have evolved in response
to the problem of scarcity.

3. Questions we ask to answer our scarcity problem
● Should I sleep late or
wake up early to study?
○ Scarcity of time
● Should I buy a cup of
coffee or make some at
home?
○ Scarcity of money
● Should I buy a Prius or a
Hummer
○ Scarcity of oil
1. What to produce?
a. Guns or Butter
2. How to produce?
a. Multiple combinations
of factors of
production (land,
labor, capital, and
entrepreneurs)
3. For whom to Produce?
a. Distribution questions
answered by
distributed income
and political system.
Individual People
● Who will get access to flu
vaccines in 2018?
○ Scarcity of medicine
● A new delivery company
has to decide on
whether to purchase a
new van or a used van.
○ Scarcity of capital
● How many workers do I
need?
○ Shortage of labor
Companies Countries

4. Different economic systems have evolved in
response to the problem of scarcity.

5. Economic Systems
All nations have an economic system.
Textbook definition: An economic system is the method used by a society
(nation) to produce and distribute goods and services.
Classroom definition: An organized way of providing for the needs and wants
of the people.
Each nation answers the question of distribution based on its unique
combination of social values and goals.

6. Discussion Questions
Think - What social values are found in your home? School? Community?
Write - Brainstorm your ideas and write them down in the correction section
of your guided notes.
Pair - With your table group, discuss your ideas.
Share - Tables 1 and 4 share your ideas about social values found in the home.
Tables 3, 5, 8, and 10 share your ideas about our social values found in school.
Tables 2, 6, and 9 share your ideas about our social values found in the
community.

7. Different nations answer the three economic
questions based on the importance they attach to
various economic goals and social values.

8. 5 Most Common Economic Goals & Societal Values
1. Economic Efficiency - Making the most of available resources
2. Economic Freedom - Freedom from government intervention in the
production, sale and distribution of goods and services.
3. Economic Security and Predictability - Assurance that goods and
services will be available, payments made on time, and a safety net to
protect individuals in times of economic disaster.
4. Economic Equity - Fair distribution of wealth.
5. Economic Growth and Innovation - Innovation leads to economic
growth, and economic growth leads to a higher standard of living.

9. No matter how a nation prioritizes its goals, one
fact remains: achieving any economic goal comes
only with some kind of economic trade-off.

10. 4 Economic Systems Developed
1. Traditional
2. Command
3. Market
4. Mixed
Each system reflects a different prioritization of economic goals. It also
reflects the values of the nations in which these systems are present.

11. Traditional
Classroom Discussion:
What do you see in the photo?
What makes you say that?
What else do you see?

12. What does a traditional economy look like?
● Relies on habit, custom, or ritual to
answer the three economic questions
● Little room for innovation or change
● Revolves around the family
● Work divided along gender lines
● Tend to stay small and close
● Work to support entire group
● Primarily agricultural and hunting

13. No modern country today has
this economy. There are only
small pockets of society.

14. Command
Also known as centrally
planned economies

15. What does a command economy look like?
● The central government alone decides how to
answer the economic questions.
○ Government owns all the land and capital
○ Government decides where people will work
and how much they will be paid
■ Little incentive to work hard
■ Inefficient production methods
● Guaranteed a job, a house, food, clothing
○ Poor quality
● Oppose private property, free marketing
pricing, competition, and consumer choice.
● There are no entrepreneurs.
○ Not open to innovation or change
● Found in socialist and communist political
systems.

16. Socialism vs. Communism
Socialism is a social and political philosophy
based on the belief that democratic means
should be used to distribute wealth evenly
through a society/nation.
Political equality AND Economic equality
Communism is characterized by a centrally
planned economy with ALL economic and
political power resting in the hands of the
central government.
The government is authoritarian, meaning
they need strict obedience from their citizens.
Violent revolutions.

17. Union of Soviet Socialist Republics, 1920-1991
● Priority: building national power and
international prestige
● Factors of Productions used in the
armed forces, space programs, and
production of capital goods (farming
equipment and factories).
○ State-run farms have state provided
farmers with equipment, seeds, and
fertilizer.
○ Heavy Industry preferred. This was large
capital investment to produce items in
other industries. → Lack of consumer
goods
Мы притворяемся, что работаем, и они притворяются, что платят нам.

18. Problems of Centrally Planned Economies
● Poor quality goods and
services
● Serious shortages of non-
priority goods and services
● Diminishing production
● Lack of incentives for
employees to work hard
● Actively discourage change
● Decision-making becomes
complicated
With a partner, analyze the image.

19. Market
Whole Classroom Activity:
Conduct a google or yelp
search for the following:
● Different pizza places
● Different shoe stores
● Different gas stations
● Different coffee shops
Use zip code: 92804

20. What does a market economy look like?
● Known as free market or capitalism
● Economic decisions are made by people and
are based on voluntary exchange or trade
○ The choices made determine what gets made,
how it's made and who consumes goods and
services
○ Need markets, places, or arrangement, where
we exchange items
● No one person, company, or nation is self-
sufficient but we can specialize
○ Specialization is the concentration of the
production efforts of individuals and firms on a
limited number of activities → efficient use of
resources

21. Circular Flow Model
Person or people living
in the same residence.
Organization that uses
resources to produce a
product which it then
sells.
Profit, the financial gain
made in a transaction.
Wages, or income, that
people get for their
labor.

22. According to Adam Smith, competition and our own
self-interest keeps the marketplace functioning.

23. Self-Regulating Nature of the Marketplace
Adam Smith, in The Wealth of Nations (1776), describes
how markets function.
1. In each transaction, the buyer and seller consider
only their self-interest, or their own personal gain.
a. Self-interest is the motivating force in the free market.
2. Consumers, or households, in pursuit of their self-
interest, have the incentive to look for lower prices.
a. Incentive is the hope of reward or the fear of
punishment that encourages a person to began in a
certain way.
b. Two types of incentives.
i. Monetary - money
ii. Non-monetary - gifts, services, other goods
3. Companies want to make a profit.
a. → Competition - struggle among producers for the
consumers’ money.

24. The self-regulating nature of the marketplace
happens without direction or plan. This phenomena
is called the “invisible hand of the marketplace.”

25. Advantages of the Free Market
1. Economic Efficiency
2. Economic Freedom
3. Economic Growth
4. Consumer Sovereignty
a. Consumers have the power to
decide what gets produced

26. Recap

27. What are the three economic questions that all
societies need to answer?

28. With a partner, how would you organize the following statements?
The consumers’
income
determines who
receives which
goods/services
By custom –
whatever was
produced in the
past
The government
decides what
should be
produced
The government
owns of the
means of
production
Business leaders
choose the
means of
production
By custom –
whoever usually
received products
will again receive
them
Consumer
choices dictate
the success of
goods/services
By custom –
however items
were produced in
the past
The government does the
planning for production:
factory locations, the
occupations of workers
and their salaries
Their goal is the
most efficient and
profitable
methods
The government controls the
distribution system for
goods/services: housing,
transportation, consumer items
and sets prices
Adam Smith
Inuits or the
Amish
Poor quality
goods
No incentive
to work hard

29. Based on what you learned, how would you classify
the USA economic system?

30. Mixed
Market-based economic
systems in which government
plays a limited role.

31. What does a market economy look like?
1. Most nations have a mixed economy.
2. Address the limits of laissez-faire, or, the belief that states that
government generally should not intervene in the marketplace.
a. The need and wants of modern societies are difficult to answer, especially in the
marketplace.
i. National defense, housing, roads, schools, hospitals
ii. Protection for private property and contracts
iii. Patent laws
iv. Companies abusing workers, bullying smaller companies

32. Circular Flow Model of a Mixed Economy
Government in the
Factor/Resource
Market
A government
purchases land, labor,
and capital from
households.
Government in the
Production Market
A government
purchases goods and
services such as
phones, office supplies,
computers, etc.
Governments provide
goods and services
such as roads, schools,
etc.
Transferring Money
Governments collect
money through taxes
from both households
and businesses. Then it
gets transfers out into
the economy through
welfare services.

33. The US is based on a free enterprise system. A free enterprise system has;
● Private or corporate ownership of capital goods
● Investments determined by private decision rather than by state control
● Self determination in a free market
Comparing Mixed Economies

34. Exit Card: Write down...
1. Three things that you learned from this lesson.
2. Two questions that you still have.
3. One country you might be interested in learning more about.