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Debates in Economics
Should the Minimum Wage Be Increased?
Chapter 2 Economic Systems and Decision Making
Section 1 Economic Systems
Chapter Overviews
Section 1: Economic Systems
Economic systems help societies provide for the wants and needs of their people. Three major economic systems have evolved over the years: traditional, command, and market economies. In the traditional economy, the WHAT, HOW, and FOR WHOM questions are answered by tradition, customs, and even habits handed down from generation to generation. In a command economy, a central authority answers the three basic questions. In a market economy, decision making is decentralized with consumers and entrepreneurs playing a central role. Most economies in the world today feature some mix of traditional, command, and market economies.
Pursuit! On the Trail of Economic Growth
Welcome
Four hundred years of New England history tell us much about how economic growth occurs. pursuit! puts you hot on the trail of this phenomenon by helping you discover the key ingredients of growth. Travel our Timeline with one of our special guides on a fun hunt for the many things that enable us to have a rising living standard. There's a lot to learn from New England's bumpy but amazing growth path. So, pack your bag, pick a trail, and get in pursuit!
How to Play
Pick a "Trail." Each trail explores a different time period with 8 questions based on New England history. Pick a "Guide." Your guide keeps you energized and on track! Answer the questions by searching the Timeline. Click the left/right arrows and century tabs to navigate. To find some answers, you'll have to click on the events for more information. Bonus: ONLY if you get at least 7 of the 8 questions right, your guide performs a "special trick" to celebrate!
1. We will divide the class into three teams for each of the three trails. There are three historical periods surveying four hundred years of historic economic growth. Each group may pick one historical period.
2. There are six guides. You may "meet" as many guides as you wish before making your selection.
Cf. http://www.economicadventure.org/pursuit/index.htm
Systems Explained for (Farmers) Dummies Using Two Cows, 3:57
In-class assignment: pick your favorite "cow" and explain its characteristics, provide examples, and describe its advantages and disadvantages.
The fundamental principles of the different types of economic, political, and social systems explained via a simple example using two cows. You heard right, COWS. If you know what a cow is and are aware of the fact that they produce more than just steaks for your dinner, or products such as milk, you are good to go and should have no problem understanding the concepts: think a traditional, a command, and or market economies.
FEUDALISM: You have two cows. Your lord takes some of the milk.
PURE SOCIALISM: You have two cows. The government takes them and puts them in a barn with everyone else's cows. You have to take care of all of the cows. The government gives you as much milk as you need.
BUREAUCRATIC SOCIALISM: You have two cows. The government takes them and put them in a barn with everyone else's cows. They are cared for by ex-chicken farmers. You have to take care of the chickens the government took from the chicken farmers. The government gives you as much milk and eggs as the regulations say you need.
FASCISM: You have two cows. The government takes both, hires you to take care of them and sells you the milk.
PURE COMMUNISM: You have two cows. Your neighbors help you take care of them, and you all share the milk.
RUSSIAN COMMUNISM: You have two cows. You have to take care of them, but the government takes all the milk.
CAMBODIAN COMMUNISM: You have two cows. The government takes both of them and shoots you.
DICTATORSHIP: You have two cows. The government takes both and drafts you.
PURE DEMOCRACY: You have two cows. Your neighbors decide who gets the milk.
REPRESENTATIVE DEMOCRACY: You have two cows. Your neighbors pick someone to tell you who gets the milk.
LIBERTARIAN/ANARCHO-CAPITALISM: You have two cows. You sell one and buy a bull.
BUREAUCRACY: You have two cows. At first the government regulates what you can feed them and when you can milk them. Then it pays you not to milk them. Then it takes both, shoots one, milks the other and pours the milk down the drain. Then it requires you to fill out forms accounting for the missing cows.
PURE ANARCHY: You have two cows. Either you sell the milk at a fair price or your neighbors try to take the cows and kill you.
SURREALISM: You have two giraffes. The government requires you to take harmonica lessons.
Why It Matters, p. 32
The BIG Idea
Guide to Reading, p. 33
Section Preview
Content Vocabulary
economic system
traditional economy
command economy
market economy
market
capitalism
mixed economy
The Spectrum of Mixed Economies
Cf. http://glencoe.com/sites/common_assets/socialstudies/in_motion_08/epp/EPP_p40.swf
socialism
communism
Academic Vocabulary
stagnation
allocate
emphasizing
Reading Strategy
Comparing and Contrasting
Companies in the News
McDonald's and Hindu Culture
Traditional Economies, p. 34
Characteristics
Examples
Advantages
Disadvantages
Reading Check
Describing
What are the advantages and disadvantages of a traditional economy?
The Global Economy & You, p. 35
Command Economies
Characteristics
Examples, p. 36
Advantages
Disadvantages, p. 37
Reading Check
Analyzing
What are the major problems with a command economy?
Market Economies
Characteristics
Examples, p. 38
Advantages
Disadvantages, p. 39
Reading Check
Identifying
What are the main characteristics of a market economy?
Mixed Economies
Characteristics
Examples, p. 40
Advantages
Disadvantages, p. 41
Reading Check
Explaining
How can you explain the range of mixed economies in the world?
Section 1 Review
Case Study
The Home Depot
Women's Conference: Home Depot, 7:16
Preview
Section 2 Evaluating Economics Performance
Guide to Reading, p. 43
Section Preview
Content Vocabulary
Academic Vocabulary
Reading Strategy
Companies in the News
Economic and Social Goals, p. 44
Economic Freedom
Economic Efficiency
Economic Equity
Economic Security, p. 45
Full Employment
Price Stability
Did You Know?
Economic Growth
Future Goals
Reading Check
Interpreting
What major themes can you identify in the list of seven economic goals?
Resolving Trade-Offs Among Goals, p. 46
Reading Check
Explaining
Why do trade-offs among goals exist?
Section 3 American Free Enterprise
Resources
Hayek's 'The Road to Serfdom' in Five Minutes, 5:01
In the 1940s, Look Magazine made a comic strip of Hayek's classic book 'The Road to Serfdom'. Hayek went on to win the Nobel Prize in Economics in 1974.
http://en.wikipedia.org/wiki/The_Road...
Hayek's central thesis is that all forms of collectivism lead logically and inevitably to tyranny, and he used the Soviet Union and Nazi Germany as examples of countries which had gone down "the road to serfdom" and reached tyranny. Hayek argued that within a centrally planned economic system, the distribution and allocation of all resources and goods would devolve onto a small group, which would be incapable of processing all the information pertinent to the appropriate distribution of the resources and goods at the central planners' disposal. Disagreement about the practical implementation of any economic plan combined with the inadequacy of the central planners' resource management would invariably necessitate coercion in order for anything to be achieved. Hayek further argued that the failure of central planning would be perceived by the public as an absence of sufficient power by the state to implement an otherwise good idea. Such a perception would lead the public to vote more power to the state, and would assist the rise to power of a "strong man" perceived to be capable of "getting the job done". After these developments Hayek argued that a country would be ineluctably driven into outright totalitarianism. For Hayek "the road to serfdom" inadvertently set upon by central planning, with its dismantling of the free market system, ends in the destruction of all individual economic and personal freedom.
Hayek argued that countries such as the Soviet Union and Nazi Germany had already gone down the "road to serfdom", and that various democratic nations are being led down the same road. In The Road to Serfdom he wrote: "The principle that the end justifies the means is in individualist ethics regarded as the denial of all morals. In collectivist ethics it becomes necessarily the supreme rule."
Cf. http://www.youtube.com/watch?v=mkz9AQhQFNY
Activity: Interdisciplinary Connection
Read 19th-century short stories by Russian authors such as Anton Chekhov or Nikolay Gogal. As you read, list details that describe effects of the Soviet Union's command economy--for example, details about jobs, economic and social status, property rights, individual freedoms, and the government. Write a report summarizing the economic effects that you fin din the story.
MARKET AND COMMAND SYSTEMS, 12:44
Cf. http://learnecon.info/moodle/mod/resource/view.php?id=10
BULGARIA - From a Command to a Market Economy, 4:43
Cf. http://learnecon.info/moodle/mod/resource/view.php?id=11
1.1 Quiz
Cf. http://learnecon.info/moodle/mod/quiz/attempt.php?id=137
IBM Corp. has launched CityOne, an online interactive simulation game designed to enable local government officials find innovative solutions for energy, water, traffic, banking and retail problems in their communities.
Players can explore more than 100 simulated crisis scenarios in CityOne. The solutions must balance various financial, environmental, social and budgetary goals. The solutions include technologies such as business process management, service reuse, cloud computing and collaborative technologies.
Cf. http://www-01.ibm.com/software/solutions/soa/innov8/cityone/index.jsp
HW email to gmsmith@shanahan.org or hand in hard copy.
1. What are the major problems with a command economy?
2. What are some products that have fallen out of favor in the United States? Why aren't these goods as widely produced as they used to be?