When you come in… (10/24/17)

Economic Systems in the Classroom How do you see the following economies in this classroom (or the school in general)? Market Command Traditional Mixed

Economic Systems Economic systems can be determined by who answers the 3 basic economic questions: What to produce? How to produce it? Whom to produce for?

Traditional Economy Ritual, habit, or customs decide how the economy works Whatever was done in the past is what you do now Ex: My parents were hunter-gatherers so I’ll be one too Pros: little to no uncertainty, life is stable and predictable, everybody knows what role to play Cons: tends to discourage new ideas, and lack of progress lowers the standard of living

Command Economy The government decides how to answer the basic economic questions. North Korea the last true Command Economy in the world Pros: whatever is needed will be produced, and no uncertainty of workers’ jobs Cons: economy based on needs and not wants, no incentive to work hard, and no reward for initiative slows progress

In what way is a traditional economy similar to a command economy? They both allow individuals to pursue whichever job they want Both show a sense of certainty for their career and future The three basic economic questions are answered through what they have done in the past Voting is essential to all in decision-making in both economies.

Market Economy Consumers decide the basic economic questions Dollars = votes Pros: High degree of individual freedom, low level of gov’t interference, a lot of choices Cons: only those with money can participate, does not provide for basic needs, high degree of uncertainty, greed (profit before people)

Mixed Economy A blend of traditional, market, and command Most economies in the world today are MIXED

Tariff A Tax on imported goods How it helps: If foreign-made goods are taxed then they’re more expensive. The less expensive domestic items are more likely to be sold – increasing GDP and keeping workers employed.

Quota Limiting the amount of goods brought into the country Example: Germany could decide to only allow 1,500 cars from Japan to be brought in within the next year. With not so many to sell, German-made cars would sell more OPEC: Using a quota in how much they export. This controls the price (especially if they want to raise it) Supply and demand

Embargo Stopping trade with another country due to political or economic reasons Example: When Cuba turned Communist the United States placed an embargo on them in hopes of hurting them economically by not buying their goods. How it helps: If a country can’t make money off trade then the GDP goes down and people lose their jobs. This economic pressure forces countries to evaluate their decisions.

Exchange Rate Before people from different countries can buy or sell anything to each other, they have to be able to change their money from their country's currency to the seller's national currency. When we buy oil from Saudi Arabia, we convert their form of currency (riyal) to the dollar. 1 riyal = 0.27 dollars

Forms of Capital Human Capital Capital Goods Knowledge and skills that workers have Investing: Education (school) and training for a specific job Factories, machines and technology that workers use to make other goods Investing: Better technology and more efficient machines

Human Capital and Capital Goods The skills and education of workers Rather have a 1st grader build your home or a skilled carpenter who’s been building homes for 20 years? You invest in human capital because smarter, better skilled workers make better products CAPITAL GOODS The factories and machines used to create OTHER goods Would you rather have a new computer to do research (homework) or use an old computer with a nasty tinted screen? You invest in capital goods because better, faster machines make better products Better products  More money  Higher GDP for country  Better standard of living

Human Capital or Capital Goods?

Human or Capital?

Learning Task COMPARE how each economic system answer the 3 basic economic questions: Advantages/disadvantages of each You can either: Role Play (up to 4 per group) Rap (up to 2 per group) Short Story (solo/alone) Graphic Organizer (solo/alone) It needs to look ORGANIZED and have A LOT of information!