| GOVT.14 |
The student will demonstrate knowledge of economic systems by |
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identifying the basic economic questions encountered by all economic systems; |
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comparing the characteristics of free market, command, and mixed economies, as described by Adam Smith and Karl Marx; |
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evaluating the impact of the government’s role in the economy on individual economic freedoms; |
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explaining the relationship between economic freedom and political freedom; |
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examining productivity and the standard of living as measured by key economic indicators. |
| GOVT.15 |
The student will demonstrate knowledge of the United States market economy by |
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a) |
assessing the importance of entrepreneurship, the profit motive, and economic independence to the promotion of economic growth; |
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comparing types of business organizations; |
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describing the factors of production; |
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explaining the interaction of supply and demand; |
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illustrating the circular flow of economic activity; |
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analyzing global economic trends, with emphasis on the impact of technological innovations. |
Explain that every society must answer three basic economic questions.
Identify the three basic economic questions:
• What goods and services should be produced?
• How should they be produced?
• For whom are they produced?
Explain that how a society answers these questions determines the type of economy it has.
Explain that the type of economy is determined by the amount of government involvement in economic decision-making.
Using the following information, describe the basic characteristics of free market, command, and mixed economics:
Free market
• A free market economy is characterized by private ownership of property/resources, profit, 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, 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.
• Most economies today are mixed economies.
Explain that a strong relationship exists between the economic and political freedoms enjoyed by citizens of free and authoritarian nations. Explain that 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
Explain that formulation of economic policies requires an understanding of accurate measures of the economy's performance.
Identify indicators of economic performance:
• Gross Domestic Product (GDP) is the total dollar value of all final goods and services produced in a year.
• Consumer price index measures the monthly price changes of sample consumer goods and services.
• Unemployment rate is the percentage of the labor force without jobs.
• Balance of trade is the difference in dollar value of imports and exports.
• Stock market averages are select groups of stocks whose performance is averaged, and over time the averages serve as an indicator for the market.
Explain that productivity is the amount of output per unit of input over a period of time.
Explain that productivity and standards of living are generally higher in economies that have limited government planning and control of the economy.
Explain that entrepreneurship is the organizational abilities and risk-taking involved in starting a new business or introducing a new product.
Explain that the entrepreneur sees an economic need and tries to fill it.
Explain that entrepreneurs must have the freedom to start new business ventures but must accept the responsibilities of that freedom.
Explain that entrepreneurs must be willing to take risks, handle rejection, survive financial uncertainty, and make personal sacrifices.
Explain that profit is the difference between the revenue received from the sale of a good or service and the costs of providing that good or service.
Explain that profit is an entrepreneur’s reward for taking a risk and succeeding.
Using the following information, describe the relationship between entrepreneurship and economic independence:
• Economic structures that provide freedom of choice encourage and possess higher levels of entrepreneurship.
Describe the three basic ways that businesses organize to earn profits:
• Proprietorship—A form of business organization with one owner who takes all the risks and all the profits.
• Partnership—A form of business organization with two or more owners who share the risks and the profits.
• Corporation—A form of business organization that is authorized by law to act as a legal person regardless of the number of owners.
Explain that in a corporation, owners share in the profit and limit their liability to the amount of their investment.
Explain that the production of goods and services depends on four basic categories of resources that are interdependent in the production process.
Identify the factors of production:
• Labor, also called human resources, is any form of human effort used in the production of goods and services.
• Capital is human-made resources (tools, buildings, equipment) used in the production of other goods and services.
• Natural resources are those items provided by nature that are used in the production of goods and services.
• An entrepreneur is the risk-taker who organizes the other resources for production.
Explain that all production depends on natural resources, which need capital for conversion to usable goods and labor to make the conversion.
Using the following chart, explain how the interaction of supply and demand in a market economy determines price.
Explain that households, firms, and government are interdependent in a market economy.
Explain that resources, goods and services, and money constantly flow in a market economy.
Using the following information, explain how the interaction of households, firms, and the government are referred to as the circular flow of economic activity:
• Households, owners of the factors of production, sell those resources to firms.
• Firms use the resources to produce goods and services that households want.
• Households use the money from the sale of resources to purchase goods and services.
• Firms use the money from the sale of goods and services to buy more productive resources.
• Government taxation policies and regulations may speed up or slow down the flow of resources, goods and services, and money in a market economy.
Explain that the economy of the United States depends on resources and markets around the world for the production and sale of goods and services.
Explain that United States businesses have become multinational in their quest for productive resources, markets, and profits.
Using the following information, explain how economies are interdependent:
• Resources are distributed unequally.
• Some economies can produce certain products more efficiently than other economies, thus having an absolute advantage in the production of that product.
• Trade provides economies with items in which they do not possess absolute advantage.
• Voluntary trade benefits all parties involved.
• When an economy is more efficient than other economies in producing a product, it has a comparative advantage in that product.
• Economies benefit when they produce those products in which they have a comparative advantage and trade for other items.
• Total world production is greater when nations specialize in the production of those products that they can produce most efficiently.
Below is an annotated list of Internet resources for this organizing topic. Copyright restrictions may exist for the material on some Web sites. Please note and abide by any such restrictions.
“Center on Japanese Economy and Business.” ColumbiaBusinessSchool. <http://www-1.gsb.columbia.edu/japan/>. This site offers computer-based resources for information on the business and economic issues of Japan.
“The Chinese Economy.” Asian Info. <http://www.asianinfo.org/asianinfo/china/pro-economy.htm>. This site presents both historical and current information on the economy of China.
CIA World Factbook. <https://www.cia.gov/cia/publications/factbook/index.html>. This site offers information on the economy and related issues for every country in the world.
EarthTrends: The Environmental Information Portal. World Resources Institute. <http://earthtrends.wri.org/country_profiles/index.cfm?theme=1&rcode=4>. This site provides a searchable database of the world’s resources by country. It requires registration but is free.
“Economic Freedom of the World, 2001.” Economic Freedom of the World: 2003 Annual Report. <http://www.freetheworld.com/2003/1EFW2003ch1.pdf>. This site explains the meaning of economic freedom and the factors that affect it. Charts display related data for countries of the world.
National Council on Economic Education. <http://www.ncee.net/>. This site allows users to search for programs and resources to assist in teaching economic concepts and issues. |
