SOL 14 The student will apply social science skills to understand economic systems by
a) identifying the basic economic questions encountered by all economic systems;
Every society must answer basic economic questions.
Basic economic questions
How a society answers these questions determines the type of economy it has.
a) identifying the basic economic questions encountered by all economic systems;
Every society must answer basic economic questions.
Basic economic questions
- What goods and services should be produced?
- How should they be produced?
- For whom are they produced?
How a society answers these questions determines the type of economy it has.
b) comparing the characteristics of traditional, free market, command, and mixed economies, as described by Adam Smith and Karl Marx;
The type of economy a country has is determined by the amount of government involvement in economic decision making.
Traditional economy
Free market economy
Command economy
Mixed economy
The type of economy a country has is determined by the amount of government involvement in economic decision making.
Traditional economy
- Economic decisions are based on custom and historical precedent.
- People often perform the same type of work as their parents and grandparents, regardless of ability or potential.
Free market economy
- A free market economy is characterized by private ownership of property/resources, profit motive, competition, consumer sovereignty, and individual choice.
- Adam Smith was one of the founders of free market capitalism.
Command economy
- A command economy is characterized by central ownership of property/resources, a centrally planned economy, and lack of consumer choice.
- Karl Marx provided the ideological foundation for communist/centrally planned economies.
Mixed economy
- Individuals and businesses make decisions for the private sector.
- Government makes decisions for the public sector.
- Government’s role is greater than in a free market economy and less than in a command economy.
- Most economies today are mixed economies.
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c) evaluating the impact of the government’s role in the economy on individual economic freedoms.
Maintaining freedom of choice in the marketplace is the basis of the free-enterprise system. Government plays a limited but important role in the protection of individual economic freedoms.
Individuals have the right to the basic economic freedoms enjoyed in a free market society. The government is responsible for protecting these freedoms.
The degree of economic freedom in a nation tends to be directly related to the degree of political freedom its citizens enjoy.
Democratic nations
- High degree of economic freedom
- High degree of political freedom
Authoritarian nations
- Limited economic freedom
- Limited political freedom
Economic freedoms of individuals can include
- ability to earn money
- right to purchase property
- right to spend incomes on goods and services
- right to choose occupations or change jobs
- right to make choices about where and how much to save
- right to start new businesses and decide what to produce.
The government has created certain institutions and consumer-protection laws and agencies to protect these freedoms, including the following:
- Consumer Product Safety Commission
- Fair Labor Standards Act
- Occupational Safety and Health Administration
- Food and Drug Administration