Economic Systems or Even Nations Must Choose

Economics Name: Skylar price

E. Napp Date: __________________________

Individuals choose. Business owners choose too. Even the leaders of nations must
choose. People choose because resources are limited (scarcity). No person can have
everything he wants or needs. So, choices must be made.

In fact, every society must answer three key economic questions:

1. What goods and services will be produced?
2. How should these goods and services be produced?
3. Who will consume these goods and services?

Of course, there are different ways to answer these questions. The answers to these
questions will determine the nation’s economic system. Economists recognize four
economic systems: a traditional economy, a free market economy, a command or centrally
planned economy, and a mixed economy. Each economic system answers the key economic
questions differently.
Questions:
1. Why must people choose? Because resources are limited.
2. What questions must a society answer? What goods are being produced, how should
they be produced, who will consume the goods.
3. How many economic systems do economists recognize? They recognize 5.
 Based on habit, custom, or ritual
 In other words, people produce
Traditional Economy and consume as their ancestors
did.
 Sons perform the same jobs as
fathers.
 individuals answer the economic
questions
Free Market Economy  People are free to buy and sell
based on their resources
 The government does not
intervene
 The government makes all
economic decisions
Command or Centrally Planned  The government owns the factors
Economy of production
 The government decides

Mixed Economy  combines the different systems

Now, you try. I will provide a quotation and you will determine whether the person
who spoke the words lived in a traditional economy, a free market economy, a
command or centrally planned economy, or a mixed economy.
 I live in a “I do as I am told. The government
makes all economic decisions. If we are
Command economy told to produce more boots, we produce
more boots.”
I live in a “I went to the supermarket and I had
many choices. I could even buy a
Free market economy dangerous product. The government
does not regulate products.”

I live in a “My father grew yams. I grow yams.

My father used a certain tool. I use the
Traditional economy same tool. I do not need to change. My
ancestors have given us the right way to
live.”
I live in a “We have many freedoms but the
Mixed economy government does intervene when
necessary. It orders companies to place
warning labels on dangerous products.”
I live in a “Sons do as their fathers did. Daughters
Traditional economy do as their mothers did. We do not
change. We keep our traditions. There
is security in keeping traditions.”
I live in a “The government controls many
Mixed economy factories and farms but farmers can
keep some of their crops. If we work
hard, we can keep some of what we
grow.”
I live in a “My father owned a factory. He sold
shoes. But I do not want to sell shoes. I
Free market economy want to sell guitars. Fortunately, I can
change production in my factory. I am
free.”
I live in a “I do not question the leaders. They tell
me to work in this factory. I work in this
factory. They tell me to make guns. I
Command or centrally planned economy make guns. To question the party is
dangerous.”
I live in a “I live in the United States. There are
many freedoms but the government does
Mixed economy not allow people to sell dangerous
products.”


Try these multiple-choice questions on economic systems from the New York State
Regents:
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Which statement best describes how a command economy functioned in the Soviet Union?

1. The laws of supply and demand controlled the economy.

2. Trade policies mandated that imports exceed exports.
3. The success of the agricultural sector controlled the price of manufactured goods.
4. A central authority determined the type and quantity of goods to be produced.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Which generalization is characteristic of most traditional societies?

1. people move from city to city seeking new jobs

2. sons learn the same trades as their fathers
3. a high degree of social mobility exists
4. all people have the same economic opportunities

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Which topic is central to the study of economics?

(1) tracking the development and spread of diseases
(2) understanding the causes of ethnic rivalries
(3) examining the distribution and use of limited resources
(4) studying the growth and role of political parties

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

An aspect of a society that an economist would study in depth would be the

1. development of self-image
2. problem of scarcity of resources
3. origins of religion, legends, and festivals
4. migratory patterns of animals

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Which is a key economic question faced by all countries?

1) How big should the army be?
2) How much money should be raised in taxes?
3) How many schools should be built?
4) What goods and services should be produced?

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~


No System is perfect:
Let’s look at a market without government regulation:
 Upton Sinclair wrote The Jungle about working conditions before government regulation.
Today, workers have many protections. The government has created rules governing
working conditions. However, when Sinclair wrote The Jungle, employers were free to
focus only on profits or money and not on the safety of workers.

The Jungle
Upton Sinclair
p119

  “There were the wool-pluckers, whose hands went to pieces even sooner than the hands of
the pickle men; for the pelts of the sheep has to be painted with acid to loosen the wool, and
then the pluckers had to pull out this wool with their bare hands, till the acid had eaten
their fingers off. There were those who made the tins for the canned meat; and their hands,
too, were a maze of cuts, and each cut represented a chance for blood poisoning. Some
worked at the stamping machines, and it was seldom that one could work long there at the
pace that was set, and not give out and forget himself, and have a part of his hand chopped
off.”

Questions:
1: What happened to the hands of wool-pluckers? Their fingers were eaten away by the acid.
2: Why did this happen to the hands of wool-pluckers? They were putting their hands in the
acid and pulling the wool.

3: Why did workers who made the tins for canned meat risk blood poisoning? Because they
got a lot of cuts on their hands.

4: What happened to workers at stamping machines? They would get their hands chopped
off.

5: In a totally free market, the government does not create rules governing the workplace.
Today, the government does have rules governing the workplace. Therefore, today, the
United States is a mixed economy. There are many freedoms but there are also
government rules. Writers like Upton Sinclair helped change the economy of the United
States. How did Upton Sinclair’s book lead to change? People were seeing that these
treatments were very unfair and that these workers should not be having to go through that pain
and danger.

No system is perfect:
Let’s look at a command economy:

George Orwell wrote Animal Farm to show the dangers of central planning. Orwell used a
farm where the animals had been mistreated as his setting. The animals had a revolution
and overthrew the farmer. They established a communist state. However, the leaders of
the revolution quickly became the new “bosses”. Orwell believed that too much
government power was dangerous. In the following excerpt, Orwell reveals the fate of a
particular worker (a horse).

ANIMAL FARM
excerpts from Chapter IX

Boxer's split hoof was a long time in healing. They had started the rebuilding of the windmill
the day after the victory celebrations were ended. Boxer refused to take even a day off work,
and made it a point of honour not to let it be seen that he was in pain. In the evenings he would
admit privately to Clover that the hoof troubled him a great deal. Clover treated the hoof with
poultices of herbs which she prepared by chewing them, and both she and Benjamin urged
Boxer to work less hard. "A horse's lungs do not last forever," she said to him. But Boxer
would not listen. He had, he said, only one real ambition left -- to see the windmill well under
way before he reached the age for retirement.

...After his hoof had healed up, Boxer worked harder than ever. Indeed, all the animals worked
like slaves that year. Apart from the regular work of the farm, and the rebuilding of the windmill,
there was the schoolhouse for the young pigs, which was started in March. Sometimes the long
hours on insufficient food were hard to bear, but Boxer never faltered. In nothing that he said or
did was there any sign that his strength was not what it had been…

Late one evening in the summer, a sudden rumour ran round the farm that something had
happened to Boxer. He had gone out alone to drag a load of stone down to the windmill. And
sure enough, the rumour was true. A few minutes later two pigeons came racing in with the
news; "Boxer has fallen! He is lying on his side and can't get up!"

1: What happened to Boxer? He hurt himself and his injury never healed and finally died from
working so hard.

2: Boxer was never permitted time to rest, to heal. Why do you think Boxer was not permitted
time to rest or heal? Because he was constantly working and never really got the chance to sit
down or take a break and most likely wasnt aloud too.

3: What appears to be more important: the worker or the work? The work seems like the main
priority because why would these workers be in so much danger if they cared about the workers
they wouldn’t be in constant danger.