CHAPTER 2 Resource Manager · Application and Enrichment E CONOMIC SYSTEMS AND THE AMERICAN ECONOMY...

Application and Enrichment

E CONOMIC SYSTEMS AND THE AMERICAN ECONOMY

ECONOMIC FREEDOM AND ECONOMIC GROWTH

Directions: Suppose that you have been called in as an economic adviser to the Ukraine, where the switchfrom a command economy to a market-driven economy has not gone smoothly. Read the following descrip-tion below, then make your recommendations on the lines below.

The Ukraine seems to be taking longer than other post–Soviet Union countries to change from a centrally plannedeconomy to a free–market economy. Although it has many natural resources—including oil and gas—that hasn’thelped. Rampant organized crime, official corruption, and the disregard for tax laws by individuals and businesses cutsinto revenues. Government-paid wage earners and those on pensions often go without, and living conditions formany people are grim.

In Poland, economic liberalization led to about three years of economic suffering. After that, however, the country’sprivate sector grew substantially each year, while the government’s commitment to economic reform encouraged foreign investment. Governmental controls were eventually removed, making it easier to open new businesses.

1. In your opinion, what are the long– and short–term goals that the Ukraine needs to consider? Explain.

2. What problems do you think the Ukraine should attend to first? Explain.

3. If you could recommend seeking assistance from countries or organizations, which would you suggest? Why?

4. What is your prediction for the Ukraine if it does not make the reforms you suggest?

5. How apparent is the concept of Adam Smith’s “invisible hand” in the advice you have given to the Ukraine?

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Enrichment Activity 2

Teaching Transparency

Application and Enrichment

Review and Reinforcement

C HAPTER 2 ECONOMIC SYSTEMS AND THE AMERICAN ECONOMY

Directions: Use the following clues to fill in vocabulary terms on the grid below.

ACROSS

1. An expansion of the economy to produce moregoods, jobs, and wealth (two words)

5. The kind of economic system that operates according to government controls

6. An economic system in which individuals own thefactors of production and make their own decisions

7. The kind of economic system in which both government controls and individual decision making operate

8. The money left after costs, including taxes, havebeen paid

9. Individuals may own and control the factors of production in a system (two words).

DOWN

2. Rivalry among producers or sellers of similar goodsto win more business

3. The kind of economic system that operates according to the way things have always been done

4. Fair and just treatment for oneself and others

7. The freely chosen activity between buyers and sellers

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Economic VocabularyActivity 2

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AKING COMPARISONSMaking comparisons helps you to understand how ideas, object, or events are similar and dif-ferent. To make a comparison, identify what it is you want to compare. Then determine areasin which you can draw comparisons. Finally, look for similarities and differences within eacharea.

Directions: Read the passage below and complete the table by identifying at least five ways in which theSoviet and United States economies differ.

Before the Soviet Union adopted a market economy, bureaucrats made all economic decisions. The governmentowned all businesses, and government officials told company managers what to produce and how to produce it.Companies had very little incentive to produce high-quality products since consumers had no choice but to purchasefrom them. As a result, the quality of consumer goods was very poor, and many goods were in short supply. Peoplehad to wait in long lines just to purchase food.

In the United States and other market economies, businesses are privately owned. Individual producers decide whatproducts to produce and control the factors of production. Companies compete with other companies to win overcustomers and gain market share. Any company that produces shoddy products eventually loses customers and goesout of business. Companies that produce products that consumers want to buy earn profits and prosper. Shortages ofgoods are rare in these economies, and consumers are able to choose from a large variety of products.

Name Date Class

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Attribute Soviet Economy U.S. Economy

1. competition among producers none fierce

2.

3.

4.

5.

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C AUSE AND EFFECT IN A MARKET ECONOMYWhen identifying cause and effect, you first look for a cause, or something that makes some-thing else happen. Then you look for the effect, or the result of the cause. For example, mixedeconomies like the one in the United States involve many cause and effect relationships.

Directions: Read all the following statements to identify the cause or effect in each relationship diagrammed below. Then write the letter of each statement in the correct place in the appropriate diagram.

Example:

A. Few people buy the Head Bangers’ first CD.

B. The music company refuses to sign the Head Bangers for a second CD.

Cause Effect

A _ B

C. Businesses produce goods that people want at a price that people will pay.

D. A poll reports that consumers prefer DVDs to VCRs because of DVDs’ added convenience and higher quality.

E. No single company can control the price of a particular service or product.

F. Factors of production are wasted.

G. Businesses keep their production costs as low as possible.

H. A large number of independent sellers offer a product or service.

I. A person may practice medicine in the United States.

J. Fewer goods and services overall are produced.

K. Americans want their economic system to be fair and just.

L. Consumers experience a shortage of goods.

M. Americans want protection against risks beyond their control.

N. Voters elect lawmakers that support laws dealing with issues such as a minimum wage for unskilled workers.

O. A person passes through an approved medical school and receives a license from a state government.

P. A company that produces VCRs decides to begin making DVD players instead.

Q. The United States government offers programs such as unemployment compensation and Medicare.

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→

→

→

Cause Effect

O

Cause Effect

H

Cause Effect

Q

→

→

→

Cause Effect

Cause Effect

J

Cause Effect

D

→

→

Cause Effect

G

Cause Effect

N

J

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E CONOMIC SYSTEMS AND THE AMERICAN ECONOMY

The various types of economic systems answer the four basic economic questions in differentways. This exercise will help you review this information.

Directions: The following sentence fragments each complete the sentence started below. Beside each fragment, indicate whether that statement best describes a traditional, command, or market economy. Label it with a T, C, or M.

“In my country . . .

1. the government controls the economy. It assigns jobs, sets production goals, and decides wages.”

2. business is based on competition. Success comes from doing something better and cheaper than your competitors.”

3. producers decide what and how much to make based on what people want to buy.”

4. we have no need for money. By custom, some of us hunt, some fish, others farm, and we are all taken care of.”

5. central planners decide when we should expand old factories or build new ones.”

6. the government makes economic decisions.”

7. the government has a very small role.”

Directions: List the six major characteristics of a pure market economy. Give an example of how each mayapply to your life in the American economy.

8.

9.

10.

11.

12.

13.

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Critical Thinking Activity 2 Reteaching Activity 2

Reinforcing Economic Skills 11

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T HE JOB MARKETHow savvy are you about job search methods? Take this quiz to find out.

Directions: Circle the answer to each question.

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1. The way to find a job is to

a. ask family and acquaintances.b. respond to classified ads.c. post your resume online.

d. all of the above

2. Most job listings usually appear in a newspaper’s

a. Saturday edition.b. Sunday edition.c. Thursday edition.

d. none of the above

3. Many “Help Wanted” ads in the newspaperdescribe nothing or little about

a. the employer.b. working conditions.c. wage or salary.

d. all of the above

4. A job may offer low wages, commissions only, orpoor working conditions if the ad reads

a. “no experience necessary.”b. “advanced degree desired.”c. “minimum three years experience.”

d. all of the above

5. A state employment service offers

a. job counseling and aptitude testing.b. detailed descriptions of openings.c. to arrange job interviews.

d. all of the above

6. You or the company that hires you has to pay a feefor a job found through a

a. private employment agency.b. college placement office.c. state employment service.

d. all of the above

7. The Job Training Partnership Act helps job seekersbetween the ages of 16 and 20 who are

a. economically disadvantaged.b. veterans of the armed forces.c. alumni of colleges.

d. all of the above

8. In the twenty-first century the Internet will continueto change

a. the way job seekers find new openings.b. the amount of time employees spend in business

offices.c. the way employers announce new job openings.d. all of the above

9. You can get help in your job search from the U.S.government’s

a. Tips for Finding the Right Job.b. Job Search Guide: Strategies for Professionals.c. Occupational Outlook Handbook.d. all of the above

10. Send a résumé and cover letter if

a. a job service sets up an interview.b. a friend refers you.c. a company in the Yellow Pages interests you.

d. all of the above

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B USINESS AND GOVERNMENTYou have learned that government plays an important role in regulating business and industry. However, businesses also influence government. For example, national business associations often use lobbyists to impress their ideas on our elected representatives. Businessesalso contribute money to the election campaigns of people who agree with their ideas. Andgovernment is usually very sensitive to the needs of business, for if businesses are hurt, theiremployees are also hurt.

Directions: Assume that you own a factory that makes children’s clothes for both the United States market and for export. State whether you would want your elected representative to support the following proposals, and give your reasons.

1. Stricter pollution controls on electric generating stations

2. Higher standards of quality for clothing

3. A tax on imported clothing that will raise its price by 15 percent

4. Government support for day care for single parents with children

5. An import tax on inexpensive foreign fabrics, raising the price by 20 percent

6. Deregulation of the trucking industry designed to increase competition among firms that transport manufactured goods

7. An increase in the business tax to help reduce the federal budget deficit

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Economic Concepts 4

E CONOMIC SYSTEMSThe U.S. Constitution provides the political, social, and legal framework for the economic system in our country.

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Economic Concepts Transparency 4

Consumer ApplicationsActivity 2

Free Enterprise Activity 2

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You and two of your friends are planning to run a concession stand at the park fromMemorial Day to Labor Day. The three of you will share the work and the profits for thesummer. The question is: Will there be any profits?

You are going to sell soda, lemonade, peanuts, and popcorn. You have a good idea of how much you will beable to sell because you have talked to the people who ran the stand the previous summer. You estimate that youcan sell at least 200 sodas, 100 cups of lemonade, 50 bags of peanuts, and 300 bags of popcorn every week. Youare going to charge 75¢ for soda, 50¢ for lemonade, $1 for peanuts, and 55¢ for popcorn.

Directions: Follow these five steps to calculate your profits.

Step 1: Figure below the amount of money you can expect to take in for one week.

Soda $.75 � 200 � (1)Lemonade $ � � (2) Peanuts $ � � (3)Popcorn $ � � (4)

One Week’s Revenue (5)

Step 2: Now use the figure for the week to compute your expected revenue for the summer (14 weeks).

(6)Does this figure represent your profits for the summer? (7)

Unfortunately, you will not just be taking in money. You will be paying out money for the food you will sell and to

rent the stand. Most other businesses have many other expenses, including labor. Since you and your friends will

work the stand yourselves, you will not have any labor costs. Your costs are just for food and rent.

You find out that it will cost $560 to rent the stand for the summer. You can buy a week’s worth of soda for

$90, lemonade for $25, peanuts for $50, and popcorn for $65. What will your costs for the summer be?

Step 3: Do your computations below:

Soda $ � � (8)Lemonade $ � � (9)Peanuts $ � � (10)Popcorn $ � � (11)Rent � (12)

Total Costs (13)

Step 4: Now that you have a reasonable estimate of both your total revenue and your total costs for the summer, use

the following equation to project what your profits for the summer will be:

Revenue � Costs � Profit

(14) � �

Step 5: Do not forget that the profits have to be split three ways. What will be your share of the summer’s profits?

(15)

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M AKING A PROFIT

�

HO GETS THE CREDIT? WHO TAKES THE BLAME?The American economy is a unique mix of business activity and government action. The govern-ment, simultaneously, tries to help control the economy and to let markets function freely. This“mixed” economic system has proved effective, but the economy isn’t always humming. Whenthere are problems, both the public and private spheres look for someone to blame.

Directions: Study the cartoon below. Then answer the questions that follow.

Name Date Class

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Paul Conrad, Los Angles Times Syndicate.

In every other art and manufacture, the effects of thedivision of labour are similar to what they are in this verytrifling one; though, in many of them, the labour can nei-ther be so much subdivided, nor reduced to so great asimplicity of operation. The division of labour, however, so

far as it can be introduced, occasions, in every art, a pro-portional increase of the productive powers of labour.

Smith, Adam. An Inquiry into the Nature and Causes of the Wealth of Nations.New York: G.P. Putnam’s Sons, 1904, and London, Methuen and Co. Ltd. 1892.

4 Primary and Secondary Source Readings

ANALYZING THE READING

1. What is Smith’s thesis?

2. According to Smith, why is it “commonly supposed” that division of labor is more prevalent in smaller factories?

3. a. How many pins can one person make in a day, working independently?

b. How many pins can one person make in a day, working in the factory Smith describes?

c. To what does Smith attribute this difference?

4. How many different steps in the pin-making process does Smith identify in the factory?

5. Reread the final paragraph. Do you agree with Smith? Might the division of labor ever be disadvantageous?Explain your answer.

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Cooperative Learning Simulations and Problems 2

Primary and Secondary Source Reading 2

Math Practice for Economics Activity 2

Economic Cartoons Activity 2

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E CONOMIC SYSTEMS

GROUP PROJECT

Each nation has a different economic system, or an organized way in which it uses itsresources to satisfy people’s needs and wants. Every economic system must address certainbasic questions, including the following: WHAT goods and services and how much of each should be produced? HOW should they be produced? FOR WHOM should they be produced? Work with your group to complete the chart below and create your own modeleconomic system to answer these basic questions.

▼MATERIALS:

Library resources such as almanacs and reference atlases

Economic Systems

1. Individual Work Stage 1: Students work individually. Review the chapter on economic systems in your textbook. Consider how each economic system addresses the basic questionsregarding resources. Locate information in the text that will help you complete the chart above.Identify types of economic systems, note the countries that exemplify each system, and recordthe strengths and weaknesses of each type.

2. Paired Work Stage 2: Students work in pairs.Using library resources such as almanacs and reference atlases, gather information to supplementthe material recorded in Stage 1. Pairs also shouldcreate a list of improvements or alternative ways of handling resources for each system.

3. Group Work Stage 3: Students work in groups of four. Pairs should share their findings and suggestions with the group. Then copy the chartabove and complete it with answers agreed upon

by the group. Choose one member to record the information.

4. Group Work/Analysis Stage 4: Students work ingroups of four. Create a model economic systemthat incorporates the strengths of the systemsincluded in the chart as well as the recommenda-tions for improvements. Brainstorm an appropriatename for the system. Then prepare a written descrip-tion of the system’s characteristics and indicate howit effectively deals with the basic questions. Shareyour completed description with the class.

Group Process QuestionsWere the goals of the assignment clear?

Did each member contribute ideas at group meetings?

Did members work well together?

What is the most important thing you learned?

COOPERATIVE GROUP PROCESS:

Name Date Class

Example Possible Type Countries Strengths Weaknesses Improvements

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Resource ManagerCHAPTER 2

he greatest improvement in the productive powers oflabour, and the greater part of the skill, dexterity, andjudgement with which it is anywhere directed, or applied,seem to have been the effects of the division of labour.

The effects of the division of labour, in the generalbusiness of society, will be more easily understood, byconsidering in what manner it operates in some particularmanufactures. It is commonly supposed to be carried fur-thest in some very trifling [small and unimportant] ones;not perhaps that it really is carried further in them than inothers of more importance; but in those trifling manufac-turers which are destined to supply the small wants of buta small number of people, the whole number of workmenmust necessarily be small; and those employed in everydifferent branch of the work can often be collected intothe same workhouse, and placed at once under the viewof the spectator. In those great [large] manufacturers, onthe contrary, which are destined to supply the great wantsof the great body of the people, every different branch ofthe work employs so great a number of workmen, that itis impossible to collect them all in the same workhouse.We can seldom see more, at one time, than thoseemployed in one single branch. Though in such manufac-tures, therefore, the work may really be divided into amuch greater number of parts, than in those of a more tri-fling nature, the division is not near so obvious, and hasaccordingly been much less observed.

To take an example, therefore, from a very trifling man-ufacture; but one in which the division of labour has beenvery often taken notice of, the trade of the pinmaker. . . .[In] the way in which this business is now carried on, notonly the whole work [pin making] is a peculiar [unique]trade, but it is divided into a number of branches, of whichthe greater part are likewise peculiar trades. One mandraws out the wire, another straights it, a third cuts it, afourth points it, a fifth grinds it at the top for receiving thehead; to make the head requires two or three distinct oper-ations; to put it on is a peculiar business, to whiten the pins

is another; it is even a trade by itself to put them into thepaper [that holds completed pins]; and important businessof making a pin is, in this manner, divided into about eigh-teen distinct operations, which, in some manufacturies areall performed by distinct hands, though in others the sameman will sometimes perform two or three of them. I haveseen a small manufactory of this kind where ten men onlywere employed, and where some of them consequently [asa result] performed two or three distinct operations. Butthough they were the very poor, and therefore but indiffer-ently accommodated with the necessary machinery, theycould when they exerted themselves, make among themabout twelve pounds of pins in a day. There are in a poundupwards of four thousand pins of middling size. Those tenpersons, therefore, could make among them upwards offorty-eight thousand pins in a day. Each person, therefore,making a tenth-part of forty-eight thousand pins, mightbe considered as making four thousand eight hundredpins in a day.But if they had all wrought [worked] separatelyand independently, and without any of them having beeneducated to the peculiar business, they certainly could noteach of them have made twenty; perhaps not one pin in aday; that is, certainly, not the two hundred and fortieth,perhaps not the four thousand eight hundredth part ofwhat they are at present capable of performing, in conse-quence of [as a result of] a proper division and combinationof their different operations.

Each person, therefore, making a

tenth-part of forty-eight thousand

pins, might be considered as making

four thousand eight hundred pins in

a day.

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Primary and Secondary Source Readings 3

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A DAM SMITH ON THE DIVISION OF LABORThe division of labor is essential to the definition of the production process in the American econ-omy. The classic discussion of the division of labor is provided by economist Adam Smith, in hisWealth of Nations, published in 1892, from which the following is excerpted. As you read Smith’swork, think about how his discussion of division of labor in a pin factory could apply to the divi-sion of labor elsewhere, such as in a computer factory. Then answer the questions that follow.

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Reading for the StudentStein, Herbert, and Murray Foss. The New Illustrated

Guide to the American Economy. Washington, D.C.:American Enterprise Institute, 1995.

Multimedia MaterialEconomics in a Changing World: Where Do I Fit In?

Churchill Media, 1995. VHS. First video in series coversthe basic tools of economics.

Additional Resources

Assessment and Evaluation

Spanish Economic Concepts Transparency 4

Spanish Vocabulary Activity 1

Spanish Reteaching Activity 1

Spanish Section Quizzes for Chapter 2

Spanish Chapter 2 Audio Program, Activity, and Test

Spanish Resources

Vocabulary PuzzleMaker CD-ROM

Interactive Tutor Self-Assessment Software

ExamView® Pro Testmaker

NBR Economics & You Video Program (English/Spanish)

Presentation Plus!

Glencoe Skillbuilder Interactive Workbook CD-ROM,Level 2

TeacherWorks CD-ROM

MindJogger Videoquiz

Interactive Economics! CD-ROM

Audio Program (English or Spanish)

Technology and Multimedia

ExamView® Pro Testmaker

PROCEDURE

1. Brainstorm laws that REGULATE business and consumers. Write these on the chalkboard. Discuss with the classwhat they all have in common. (protection)

2. Brainstorm things that the various levels of government PROVIDE. Write these on the chalkboard. Discuss withthe class what these things have in common. (protection and well-being)

3. Distribute copies of the Preamble to the Constitution and explain each segment of the Preamble:

We, the People, of the United States, in Order to form a more perfect Union (in order to be a better county),establish Justice (make laws fair and equal), insure domestic Tranquillity (peace at home), to provide for the common defense (provide protection, a military), promote the general Welfare (make sure people have basicthings like health care, food, shelter), and secure the blessings of Liberty to ourselves and our Posterity (makesure people have basic freedoms, not only now but in the future as well) do ordain and establish thisConstitution for the United States of America.

Take each of the segments, and let the students decide what each segment means. Then say: These were GOALSthe Founders had for our government. They only hoped our government could provide and protect its people.

4. Write the goals on the board: efficiency, growth, security, equity, stability, and individual freedom. Have your students describe in personal terms what these words mean to them. Their descriptions should be of a personalnature, not economics. They are to simply look at these terms and define them in personal terms. Have some ofthe students share their definitions and then relate them to the goals of the economy. Be sure to explain that notall goals are achieved, that is why they are called goals.

5. Go on to discuss the CHARACTERISTICS of our system: choice, private property, profit, and competition.

6. Let the students pick one or two partners. The 10 articles that you have gathered should be stationed aroundthe room. The students should make their way around the room, reading the articles and determining what goalis being attempted. There will probably be more than one goal in each article, so have the students justify whythey choose the goal(s) that they did. If working in pairs, have one student read the article and the other writethe answers.

Assessment

1. Have the partners give their answers and justifications. Make sure that the one who reads does the presenting.

▼BACKGROUND

The success of any economic system dependson its ability to satisfy the needs of its people.These needs are in part defined by the goals asociety sets for itself.

▼MATERIALS

A copy of the Preamble to the Constitution;approximately 10 articles that illustrate thegovernment’s attempt to accomplish the goalsof the economy

▼OBJECTIVES

After completing this activity, students will beable to• Distinguish between a goal and

a characteristic.• Describe the goals of our free

enterprise system.• List the major characteristics of our free

enterprise system.

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T HE GOALS OF THE ECONOMY

Name Date Class

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Performance Assessment Activity 2

13. Which of the following countries has a command economy?

a. France b. Taiwanc. North Korea d. South Korea

14. A laissez-faire system is one in which

a. government controls the factors of production.b. individuals and the government make economic decisions.c. government interference in the economy is minimal.d. government purchases goods and services from consumers.

15. What goods and services should be produced, how they should be produced, and who should share inwhat is produced are three basic questions addressed by

a. market economies. b. command economies.c. mixed economies. d. all economies.

CRITICAL THINKING QUESTIONS

Directions: Answer each of the following sets of questions on a separate sheet of paper.

16. Evaluating Primary and Secondary Sources What is the main message of Adam Smith’s 1776 publica-tion An Inquiry into the Nature and Causes of the Wealth of Nations? Why is this book important today?

17. Drawing Inferences and Conclusions In which kind of economy do you think consumers have the great-est range of choices? Why?

APPLYING SKILLS

Using Charts and Tables: Study the chart and answer the questions below.

18. Which of the three countries shown appears to have the lowest standard of living?

19. How are infant mortality and per capita income related?

20. What might you conclude from this table about the nature of a country’s economic system and its standard ofliving?

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Name Date Class

2, B

China 34 $2,303

Germany 6 $26,190

United States 8 $27,550

Chapter 2 Test Form B

E CONOMICS SYSTEMS AND THE AMERICAN ECONOMY

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RECALLING FACTS AND IDEAS

Multiple Choice: In the blank at the left, write the letter of the choice that best completesthe statement or answers the question.

11. The word “equity” means

a. profitability. b. fairness.c. equality. d. justice.

12. In a capitalist system, most property is

a. private property. b. owned by the government.c. regulated by the government. d. owned by banks.

SCORE

2, B

A1. competition

2. command economy

3. economic growth

4. standard of living

5. mixed economic system

6. profit incentive

7. private property

8. laissez-faire

9. market economy

10. market

USING KEY TERMS

Matching: Match each item in Column A with the items in Column B. Write the correctletters in the blanks.

Ba. economic system in which the government minimizes its inter-

ference in the economy

b. economic system that combines features of a market econo-my and a command economy

c. the material well-being of an individual, group, or nationmeasured by how well their need for necessities and luxuriesis satisfied

d. expansion of the economy to produce more goods, jobs, andwealth

e. economic system in which the government controls the fac-tors of production and makes all decisions about their use

f. rivalry among businesses to gain new customers

g. freely chosen activity between buyers and sellers of goods andservices

h. whatever is owned by individuals rather than by the government

i. economic system in which individuals own the factors of pro-duction and make their own economic decisions

j. desire to make money that motivates people to produce andsell goods and services

13. According to Adam Smith,

a. the role of the government is to allocate resources.b. government should not interfere in the marketplace.c. a mixed economy combines all of the benefits of a command and a market economy.d. left to themselves, individuals would mishandle the economy.

14. A major characteristic of a pure market economy is

a. unrestricted competition. b. an oversupply of labor.c. strong government planning. d. regulated prices.

15. It is easier to start your own business in a

a. command economy. b. controlled economy.c. traditional economy. d. free enterprise system.

CRITICAL THINKING QUESTIONS

Directions: Answer each of the following sets of questions on a separate sheet of paper.

16. Drawing Conclusions Which type of economic system do you think has been the most effective in promot-ing economic growth?

17. Making Comparisons Explain how running shoes are produced in a market economy and in a commandeconomy. Be sure to indicate the kinds of shoes you believe each system would produce.

APPLYING SKILLS

Using Charts and Tables: Study the chart and answer the questions below.

18. Which of the three countries shown appears to have the highest standard of living?

19. According to the table, how does the standard of living in Germany compare with the standard of living in theUnited States?

20. What conclusions might you draw from this data about the relationship between the type of economy and thestandard of living?

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Name Date Class

2, A

China 34 $2,303

Germany 6 $26,190

United States 8 $27,550

Chapter 2 Test Form A

E CONOMICS SYSTEMS AND THE AMERICAN ECONOMY

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Name Date Class

RECALLING FACTS AND IDEAS

Multiple Choice: In the blank at the left, write the letter of the choice that best completesthe statement or answers the question.

11. Adam Smith’s “invisible hand” refers to the role of

a. the government. b. the market.c. customs and beliefs. d. factors of production.

12. Another term for a capitalist system is a

a. command economy. b. market economy.c. mixed economy. d. laissez-faire system.

SCORE

2, A

A1. laissez-faire

2. market economy

3. command economy

4. competition


6. profit incentive

7. profit

8. traditional economy

9. economic equity

10. mixed economy

USING KEY TERMS

Matching: Match each item in Column A with the items in Column B. Write the correctletters in the blanks.

Ba. economic system that combines features of market economy

and command economy

b. economic system in which decisions are based on customsand beliefs

c. desire to make money that motivates people to produce andsell goods and services

d. rivalry among producers to win business

e. economic system in which the government minimizes its inter-ference in the economy

f. money left over after all the costs of production have been paid

g. economic system in which economic decisions are made byindividuals rather than the government

h. the material well-being of an individual, group, or nation

i. economic fairness and justness

j. economic system in which economic decisions are made bythe government

30B

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■


You and your students can visit ett.glencoe.com—the Web site companion to Economics Today andTomorrow. This innovative integration of electronic andprint media offers your students a wealth of opportuni-ties. The student text directs students to the Web site forthe following options:

• Chapter Overviews • Student Web Activities

• Self-Check Quizzes • Textbook Updates

Answers are provided for you in the Web ActivityLesson Plan. Additional Web resources and InteractivePuzzles are also available.

Use the Glencoe Web site for additional resources. All essential content is covered in the Student Edition.

ECONOMICS

tx.ett.glencoe.com

http://tx.ett.glencoe.com

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■


30C

Blackline Master

Transparency

Software

CD-ROMVideodisc

Audiocassette

Videocassette

Reading Objectives Reproducible Resources Technology/Multimedia Resources

Section 1Economic Systems• What three questions must all eco-

nomic systems answer?• What are the major types of economic

systems and their differences?

Section 2Characteristics of the American Economy• What is the role of government in our

free enterprise economy?• How do freedom of enterprise and free-

dom of choice apply to the Americaneconomy?

• What roles do private property, theprofit incentive, and competition play inthe American economy?

Section 3The Goals of the Nation• What are the major goals of a market

economy?• How can people balance economic

rights with economic responsibilities?

Reproducible Lesson Plan 2-1Daily Lecture Notes 2-1Guided Reading Activity 2-1Reading Essentials and Study Guide 2-1Daily Focus Activity 6Section Quiz 2-1*Reinforcing Economic Skills 11

Reproducible Lesson Plan 2-2Daily Lecture Notes 2-2Guided Reading Activity 2-2Reading Essentials and Study Guide 2-2Daily Focus Activity 7Section Quiz 2-2*

Reproducible Lesson Plan 2-3Daily Lecture Notes 2-3Guided Reading Activity 2-3Reading Essentials and Study Guide 2-3Daily Focus Activity 8Section Quiz 2-3*

Daily Focus Transparency 6

Economic Concepts Transparency 4Vocabulary PuzzleMaker CD-ROMInteractive Tutor Self-Assessment SoftwareMindJogger Videoquiz

NBR‘s Economics & You*Interactive Economics!Presentation Plus!ExamView® Pro Testmaker

Daily Focus Transparency 7Vocabulary PuzzleMaker CD-ROMInteractive Tutor Self-Assessment SoftwareMindJogger VideoquizPresentation Plus!ExamView® Pro Testmaker

Daily Focus Transparency 8Vocabulary PuzzleMaker CD-ROMInteractive Tutor Self-Assessment SoftwareMindJogger VideoquizPresentation Plus!ExamView® Pro Testmaker

*Also available in Spanish

Section Resources

Block Schedule

Mark WardOwego Free AcademyOwego, New York

Local EconomicsHave students become familiar with their community’s

economy. The entire class will analyze a map of the com-munity and divide it into six smaller regions. Then, in smallgroups, students will research one of these economicregions. Have groups investigate their area by interviewingshopkeepers and consumers. Find out local history aboutthe area and what the future holds. After each group gath-ers information, come together as a class. Design and pro-duce booklets about the local economy.

ACTIVITYFrom the Classroom ofACTIVITYFrom the Classroom of

Activities that are particularly suited to use within the blockscheduling framework are identified throughout this chapterby the following designation: BLOCK SCHEDULING

Block Schedule

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■


Teaching strategies have been coded for varying learning styles and abilities.L1 BASIC activities for all studentsL2 AVERAGE activities for average to above-average

studentsL3 CHALLENGING activities for above-average students

ENGLISH LANGUAGE LEARNER activitiesELL

Key to Ability Levels

Voluntary Standards Emphasized in Chapter 2Content Standard 3 Students will understand that dif-ferent methods can be used to allocate goods and services.People, acting individually or collectively through govern-ment, must choose which methods to use to allocate differ-ent kinds of goods and services.

Content Standard 16 Students will understand thatthere is an economic role for government to play in a marketeconomy whenever the benefits of a government policy out-weigh its costs.

Resources Available from NCEE• Capstone: The Nation’s High School Economics Course• Focus: High School Economics• Civics and Government: Focus on Economics• Economics in Transition: Command to Market

To order these materials, or to contact your StateCouncil on Economic Education about workshops andprograms, call 1-800-338-1192 or visit the NCEE Web siteat http://www.nationalcouncil.org

30D

Timesaving Tools

• Interactive Teacher Edition Access your TeacherWraparound Edition and your classroom resourceswith a few easy clicks.

• Interactive Lesson Planner Planning has never been easier!Organize your week, month, semester, or year with all the lessonhelps you need to make teaching creative, timely, and relevant.

Use Glencoe’s Presentation Plus! multimediateacher tool to easily present dynamic lessonsthat visually excite your students. Using MicrosoftPowerPoint® you can customize the presenta-tions to create your own personalized lessons.

ECON: 10A, 23A, 23F, 24C-D

http://www.nationalcouncil.org

Why It’s ImportantWhy do we, as American consumers, have so many choices? How is our economy different from the economies ofother countries? This chapter will explainthe different kinds of economic systems.

Chapter Overview Visit the Economics Today and Tomorrow Web site at tx.ett.glencoe.com and click on Chapter 2—Chapter Overviewsto preview chapter information.

To learn moreabout economicsystems, viewthe Economics

& You Chapter 3 video lesson:Economic Systems and theAmerican Economy

IntroducingCHAPTER2

30

Chapter OverviewChapter 2 explains or describes

how economic systems answerbasic questions about productionand distribution of goods and ser-vices; how economic systems differ;and what constitutes the majorcharacteristics of the United Statesmarket economy.

CHAPTER LAUNCH ACTIVITY

IntroducingCHAPTER2

Use MindJogger Videoquiz to preview Chapter 2content.

Introduce students to chaptercontent and key terms by havingthem access Chapter 2—ChapterOverviews at ett.glencoe.com

Call on students to identify the characteristics of the American economic system. Ifstudents have difficulty, provide clues that might lead them to correct answers. Forexample, to elicit the response “freedom of choice,” you might say: “When you go to thestore to buy breakfast cereal, are there many kinds or just one? If there are many, youhave __________.” Note responses on the board. Then underline the terms choice andcompetition, and point out that in this chapter students will learn that these are majorcharacteristics of the American economy.

ECONOMICS & YOU

Economic Systems and theAmerican Economy

!7AL." Chapter 3 Disc 1, Side 1

ASK: What are some examplesof government’s role in theAmerican economy? Answersmay include requiring businessesto pay workers a minimum wageand requiring them to meet envi-ronmental standards.

Also available in VHS.

tx.ett.glencoe.com

ECON: 4A-B, 10A, 24A

http://www.glencoe.com/sec/socialstudies/economics/econtt2003/tx/chapter2/overview.shtml


31

31Economic Systems and the Amer ican Economy

Terms to Know• economic system• traditional economy• command economy• market economy• market• circular flow of economic

activity• mixed economy

Reading Objectives1. What three questions must

all economic systemsanswer?

2. What are the major types ofeconomic systems and theirdifferences?

READER’S GUIDE

You probably have set some goals for your life, such as goingto college, learning a trade, or opening a business. If you wereto compare your personal goals to the goals of a Diaguita liv-

ing in Argentina or to a North Korean teenager, the lists might varywidely. One of the reasons for this variance is that each of these per-sons lives in a community or nation with a different economicsystem, or way of determining how to use resources to satisfy peo-ple’s wants and needs. In this section, you’ll learn about the differ-ent kinds of economic systems in the world.

Three Basic QuestionsAlthough nations will have different economic systems, each

system is faced with answering the same three basic questions:

1

economic system: way in whicha nation uses its resources to sat-isfy its people’s needs and wants

WE LIVE IN ARGENTINA, BY ALEX HUBER

Diaguita Indians have lived in this region for genera-tions. . . . We grow beans, corn and potatoes on themountain slopes. To irrigate these crops, we still use thechannels built centuries ago by our ancestors. We also

breed llamas. . . . In ourcommunity, the more llamasyou own, the richer you are.

. . . You can tell to whichcommunity someonebelongs by the way theydress, the color of theirclothes, and the hairstyle ofthe women.

CHAPTER 2SECTION 1, Pages 31–38


Reproducible MastersReproducible Lesson Plan 2–1Reading Essentials and Study Guide 2–1Guided Reading Activity 2–1Section Quiz 2–1Daily Focus Activity 6Daily Lecture Notes 2–1

MultimediaDaily Focus Transparency 6Economic Concepts Transparency 4Vocabulary PuzzleMaker CD-ROMInteractive Tutor Self-Assessment SoftwareExamView® Pro Testmaker

MindJogger VideoquizNBR’s Economics & You

Interactive Economics!

SECTION 1 RESOURCE MANAGER

OverviewSection 1 explains or describes

the three basic questions thatdefine the major economic systems,and the concepts of traditional,command, market, and mixedeconomies.

Answers to the Reading Objectivesquestions are on page 38.

Preteaching VocabularyVocabulary PuzzleMaker

READER’S GUIDE

Project Daily FocusTransparency 6 and have students answer the questions.

Available as blackline master.

Daily Focus Transparencies

T YPES OF ECONOMIC SYSTEMS

1. Which of these economic systems best describes the UnitedStates?

2. Give examples of when the other two systems have been (or might be) utilized by the United States for making economic decisions.

Types of Economic Systems

• Economic decisions are based on customs and beliefs.

• Change is discouraged and sometimes even punished.

• Methods of production are often inefficient.

• Family and community ties are strong.

• Economic decisions are made by individuals.

• Individuals own the factors of production and choose what to produce based on the information provided by market prices.

• Consumer choice is large.

• Little incentive to engage in unprofitable ventures like caring for the sick.

• Economic decisions are made by government leaders.

• The government owns the factors of production.

• Prices are set by the government.

• Consumer choice is often limited.

• Resources can be quickly rerouted.

• Income distribution can be controlled by the government.

Traditional Market Command

66

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Page 31: 6A, 10A-B, 21A-B, 22A-B,23A, 24A

Student Edition TEKS


CHAPTER 2SECTION 1, Pages 31–38 What goods and services should be produced? How should they

be produced? Who should share in what is produced?

What Should Be Produced? As you’ve learned, we live in aworld of scarcity and trade-offs. If more of one particular item isproduced, then less of something else will be produced. If thegovernment decides to use resources to build new roads, thenfewer resources are available to maintain national parks. If acity decides to hire more police officers, fewer funds are avail-able to add teachers to classrooms. Similarly, as shown inFigure 2.1, an automobile manufacturer must decidewhether to produce pickup trucks, minivans, sports utilityvehicles, or luxury cars—and how much of each.

How Should It Be Produced? After deciding what toproduce, an economic system must then decide how thosegoods and services will be produced. Will more laborers behired? Will skilled laborers or unskilled laborers do thework? Will capital goods be used to manufacture the prod-ucts, thereby reducing the number of laborers needed? Asshown in Figure 2.2, a decision must be made as to howthe combination of available inputs will get the job donefor the least cost.

What to Produce? An automo-bile manufacturer must decide whichtypes of cars to produce with its limitedsupplies of labor, steel, rubber, and soon. Why can’t businesses or nationsproduce as much as they want?

2.12.1

How to Produce? Trade-offs exist among the available factors ofproduction. A farmer could use a horse-drawn plow to prepare a field forplanting, or instead use modern equipment. What factors must be con-sidered when deciding how to produce a good or service?

2.22.2

32

Guided PracticeL1 Constructing a Chart Call onstudents to identify how each of theeconomic systems answers the basiceconomic questions. Note responseson the board. Then have studentsuse the information on the board toconstruct a chart titled “ComparingEconomic Systems—the Basic Eco-nomic Questions.”

Reading Disability To increase text comprehension, tell students to scan the Reader’sGuide before reading the entire section. Knowing what to look for before reading helpsstudents who have difficulty focusing attention to gain direction.

Refer to Inclusion for the Social Studies Classroom Strategies and Activities for students with different learning styles.

Meeting Special Needs

Answer: because economics isruled by scarcity and trade-offs—if more of one particular item isproduced, then less of somethingelse will be produced

Answer: how the combination ofavailable resources will get the jobdone for the least cost

L ECTURE LAUNCHERIn 1953, China began to force its farmers into cooperatives of 20 to 30 households. Thefarmer would own his house, a garden plot, and his personal savings. Just three years later,over 88 percent of China’s peasants lived in cooperatives. If you had to make economic deci-sions cooperatively with a dozen of your classmates, how might your economic activities bechanged?

I. Three Basic Questions

A. What goods and services should be produced?

B. How should they be produced?

C. Who will get the goods and how will they be distributed?

• Discussion Question

Think of a good or service in your school or community that is offered on a first-come-first-served basis. Why do you think it is distributed in this manner? Do youagree with this method of distribution? (Answers will vary. Students should be able toconsider the merits of this form of distribution and compare it with other methods. Price, lot-teries, and first-in-line policies are all methods for rationing goods.)

II. Types of Economic Systems

A. A traditional economy is based on customs and beliefs passed down for generations.

2-1

PAGES 31–33

Daily Lecture Notes 2–1

ECON: 10A, 23A,23F, 24C-D

ECON: 23A

33


traditional economy: system in which economic decisions arebased on customs and beliefsthat have been handed downfrom generation to generation

For Whom Should It Be Produced? After goods or servicesare produced, the type of economic system under which people livedetermines how the goods and services will be distributed amongits members. See Figure 2.3. Who receives the new cars? Who ben-efits from a new city school? Who lives in new apartment buildings?As you will read, most goods and services in the United States aredistributed to individuals and businesses through a price system.Other economies may distribute products through majority rule, alottery, on a first-come-first-served basis, by sharing equally, by mili-tary force, and in a variety of other ways.

Types of Economic SystemsEconomists have identified four types of economic systems.

They differ from one another based on how they answer thethree basic questions of what, how, and for whom to produce.The four types of economic systems are traditional, command(or controlled), market (or capitalist), and mixed. Keep in mindthat the four systems described here are theoretical representa-tions of economies found throughout the world. No “pure” sys-tems really exist—they are all mixed economies to some degree.

Traditional System A pure traditional economy answers thethree basic questions according to tradition. In such a system,things are done “the way they have always been done.” Economicdecisions are based on customs and beliefs—often religious—handed down from generation to generation.

If you lived in a traditional economic system, your parentswould teach you to perform the same tasks that they learnedfrom their parents. As a male, for example, if your father was afisherman, you would become a fisherman. You would learn to

For Whom to Produce?In the United States economy,people’s career choices deter-mine their level of income,which in turn affects their abil-ity to purchase produced items.Do you think goods andservices should be distrib-uted in a way other thanbased on income? Explain.

2.32.3

HAGAR THE HORRIBLE

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L2 Applying Ideas Review theinformation on the three economicsystems with students. Then ask stu-dents to consider the following ques-tion: How might each of the threeeconomic systems respond to theintroduction of new technology?Assist students by suggesting thatthey look at how each economic sys-tem views new ideas.

Project Economic ConceptsTransparency 4 and have studentsdiscuss the accompanying questions.

Answer: Answers will vary.Encourage students to provide rea-sons for their answers.

List the advantages and disadvantages of the market economic system on a sheet ofpaper. Organize students into several groups, and give each group a copy of the list. Askgroups to search newspapers and magazines and to watch television news programs tolocate examples of each of the listed advantages and disadvantages. Suggest that groupspresent their findings in a pictorial essay titled “Market Economies: Advantages andDisadvantages.” Call on group representatives to share their essays with the class.

BLOCK SCHEDULING

Cooperative Learning

For Use with textbook pages 31–38

E CONOMIC SYSTEMS

FILLING IN THE BLANKS

Directions: Use the information in your textbook to fill in the blanks using the words in the box. Somewords may be used more than once.

resources economic system price systemgoods and services traditional economy command economymixed economy circular flow of economic activity market

IntroductionAn economic system is a way of determining how to use 1 __________________________ to satisfy people’s wants

and needs.

Three Basic QuestionsA nation must determine what 2 __________________________ to produce and how to produce them. The

3 __________________________ a nation has determines for whom goods and services will be produced. In the

United States, most goods and services are distributed through a 4 __________________________.

Types of Economic SystemsThe amount of involvement a society’s leaders have in allocating scarce 5 __________________________ helps

determine its economic system. In limited parts of the world, a 6 __________________________ , based on customs

and beliefs, exists. Government leaders control the factors of production and make all economic decisions in a

7 __________________________. In contrast, individuals in a 8 __________________________ economy, control

economic decisions. Under this system, the economy is based on information obtained from the

9 __________________________ , where the voluntary exchange of 10 __________________________ takes place.

Economists use a 11 __________________________ model to illustrate how the market system works. The

last type of economic system combines the basic elements of the command and market economy. In a

12 __________________________ there is private ownership of property and individuals decisions are combined

with government intervention.

4 Guided Reading Activities

Copyright ©

by The M

cGraw

-Hill C

ompanies, Inc.

Name Date Class

2-1

Guided Reading Activity 2–1

ECON: 10A, 23A, 23D, 24C-D

ECON: 10A, 23A,23D, 26A

Page 32: 4B, 5A, 10A, 23APage 33: 5A, 10A, 21A-B, 23A,

23D, 24A, 24D




34 CHAPTER 2

command economy: system inwhich the government controls thefactors of production and makesall decisions about their use

make fishing nets the same way he was taught. And you woulddistribute your catch in the manner that it had always been done.

An advantage of living in a traditional economy is that youknow what is expected of you. In addition, family and communityties are usually very strong. Disadvantages include an economy inwhich change is discouraged and perhaps even punished, and onein which the methods of production are often inefficient. Conse-quently, choices among consumer goods are rare.

As Part C of Figure 2.4 shows, traditional economies exist tosome extent in very limited parts of the world today. The Inuit ofNorth America, the San of the Kalahari in Africa, and the Aboriginesof Australia are organized into traditional economic systems.

Command System The pure command economy is some-what similar to the traditional economy in that the individual haslittle, if any, influence over how the basic economic questions areanswered. In a command or controlled system, however, govern-ment leaders—not tradition—control the factors of productionand, therefore, make all decisions about their use.

Decisions in government may be made by one person, asmall group of leaders, or a group of central planners in anagency. These people choose what is to be produced and howresources are to be used at each stage in production. They alsodecide how goods and services will be distributed. If you livedin a command economy, you would be paid according to whatthe central planners decide, and you might even lose your abil-ity to make a career choice. Through a series of regulationsabout the kinds and amounts of available education, the gov-ernment guides people into certain jobs.

An advantage of a controlled economy is the speed withwhich resources can be rerouted. If war is likely, the centralplanning agency can halt all manufacturing of civilian goodsand channel the factors of production into making strictly mili-tary goods. Disadvantages include a lack of incentives to workhard or to show inventiveness, as well as a lack of consumerchoices. Because the government sets workers’ salaries, there is no reason to work efficiently or smartly.

Only a few countries in the worldtoday still have much of a commandeconomy. North Korea and the People’sRepublic of China are the two mainexamples because so much economicactivity there is government-planned.See Part B of Figure 2.4.

34

IndependentPracticeL1 Creating a Bulletin-Board Display Have students work insmall groups to collect images fromnewspapers and magazines thatillustrate aspects of the three eco-nomic systems. Direct groups to usetheir visual materials to create a bul-letin-board display titled “Illustratingthe Three Economic Systems.” ELL

An element of the traditionaleconomic system persists in theUnited States—barter. Thisinvolves the exchange of goodsand services. According to theNational Association of TradeExchanges, there are 350,000 to400,000 businesses in the UnitedStates and Canada conductingabout $4.3 billion in barter trade a year.

Have students work individually or in groups to study a local business. Monitor stu-dents’ choices to ensure that both manufacturing and service-oriented businesses are cov-ered. Ask students to find recent decisions and actions taken by their selected businessesthat were influenced by the three basic economic questions. Have students present theirfindings in a brief oral report. BLOCK SCHEDULING

Free Enterprise Activity

ECON: 10A, 23A, 24D

ECON: 10A-B

ECON: 2B, 4A-B, 5A, 23A, 24D

35

A Market EconomyIn a market economy,prices are an efficientmeans of providing infor-mation for voluntaryexchange. Why do yousuppose that prices areconsidered “neutral”?

Types of Economic Systems The types of eco-nomic systems differ from one another based on howthey answer the three basic questions of what, how, andfor whom to produce.

2.42.4

B Command EconomyCommand economies were com-mon throughout history. China’seconomy is still considered to begovernment-controlled, althoughthat is changing rapidly. Whomakes economic decisions in a command economy?

C Traditional EconomyNomadic herders in the Andes retain manyelements of a traditional economy, in whicheconomic decisions are based on customs.What examples in your life could be classified as belonging to a traditional economy?



L2 Applying Ideas Organize stu-dents into several groups, and tellgroups to imagine that they work foran advertising company. They havebeen given the task of “selling” eachof the three economic systems to thepublic. Direct groups to develop anadvertising slogan for each systemthat focuses on its advantages. Callon group representatives to presenttheir slogans to the class. Encourageclass members to act as a focusgroup and critique the slogans.

BLOCK SCHEDULING

You might ask students to sum-marize each economic system in aone-word summary. Answer: PART A: because they arefree to rise and fallPART B: government leaders PART C: Answers will vary.Encourage students to explain theiranswers.

China and Free EnterpriseIn 1999 China changed its con-

stitution to allow the private sectorto become an important part of theeconomy. However, the constitu-tion still refers to the Chinese eco-nomic system as “socialist.”

Ideal Types To make the study and analysis of social phenomena easier, social scien-tists often use ideal types. An ideal type is a simplified description of a particular phenom-enon that focuses on the common attributes of that phenomenon. In other words, it offersa picture of that phenomenon’s essential nature. The three kinds of economic systems dis-cussed in this section are ideal types.

Extending the Content

ECON: 10A

ECON: 10A, 23A

ECON: 10A-B, 22A

ECON: 10A,23A, 23D, 24D

Page 34: 10A-B, 22A-B, 24APage 35: 5A, 10A-B, 23A, 23D




36 CHAPTER 2

market economy: system inwhich individuals own the factorsof production and make economicdecisions through free interactionwhile looking out for their ownand their families’ best interests

market: freely chosen activitybetween buyers and sellers ofgoods and services

Market System The opposite of a pure command economy is apure market economy—also called capitalism. In a market system,economic decisions are not made by government, but by individualslooking out for their own and their families’ best interests. A limitedgovernment makes it possible for individuals to decide for them-selves the answers to the three basic questions. Individuals own thefactors of production, and therefore choose what to produce andhow to produce it. Individuals also choose what to buy with theincome received from selling their labor and other resources. All ofthese choices are guided not by tradition or a central planningagency, but by information in the form of market prices.

A market is not necessarily a place.Rather, it is the voluntary exchange ofgoods and services between buyers andsellers. This exchange may take place in a worldwide market for a good such ascrude oil. It may also take place in aneighborhood market for services suchas paper delivery, snow shoveling, andbaby-sitting.

As shown in Part A of Figure 2.4 onpage 35, prices in a market coordinate theinteraction between buyers and sellers. Asprices change, they act as signals to every-one within the system as to what should

be bought and what should be produced. A high price for a goodgenerally means that it is relatively scarce. A low price suggests that itis relatively abundant. The freedom of prices to rise and fall results ina neutral, self-organizing, incentive-driven system.

In the former Soviet Union, workers oftenused resources inefficiently or completely

wasted them when trying to fill governmentproduction quotas. For example, after thecentral planning committee ordered a quotafor glass based on the number of panes,

workers made many panes of glass—eachextremely thin and shattering easily! Whenthe production quota was changed to bebased on the weight of the panes, workersmade the glass panes so thick that theywere useless. ■

Economic Connection to... HistoryEconomic Connection to...

Student Web Activity Visit the Economics Today and Tomorrow Web site at tx.ett.glencoe.comand click on Chapter 2—Student WebActivities to learn more about the commandeconomy of the former Soviet Union.

The Soviet Union’s Quota SystemThe Soviet Union’s Quota System

36

ECONOMICS & YOU

Economic Systems and theAmerican Economy


ASK: What are some examplesof government’s role in theAmerican economy? The gov-ernment regulates business byrequiring businesses to pay work-ers a minimum wage and byrequiring them to meet environ-mental standards. It also providesservices such as health care tothe elderly.


See the Web Activity LessonPlan at ett.glencoe.com for anintroduction, lesson description,and answers to the Student WebActivity for this chapter.

Applying Ideas Ask students to consider the role that they play in the American econ-omy. Suggest that they think of and list the consumer purchases they have made and thejobs they have held. Encourage them to write a brief paragraph analyzing how their eco-nomic decisions and actions influence the American market economic system. Make sureto tell students to use correct spelling, punctuation, and grammar when writing their para-graph.

Critical Thinking Activity

tx.ett.glencoe.com

ECON: 1A-B, 4A-B, 10A, 23A, 23D, 24B, 24D

http://www.glencoe.com/sec/socialstudies/economics/econtt2003/tx/chapter2/walp.shtml

http://www.glencoe.com/sec/socialstudies/economics/econtt2003/tx/chapter2/webact.shtml

37

circular flow of economicactivity: economic model thatpictures income as flowing contin-uously between businesses andconsumers

The flow of resources, goods and services, and money in a mar-ket system is actually circular, as shown in Figure 2.5. Economistsuse this model, called a circular flow of economic activity, toillustrate how the market system works. Note how dollars flow frombusinesses to individuals and back to businesses again. The factorsof production flow from individuals to businesses, which use themto produce goods and services that flow back to individuals. The cir-cular flow works because the information needed for its operation isscattered among all participants in the economy.

The advantages of a pure market system are many. People havefreedoms—to choose a career, to spend or not spend their incomehow they wish, to own private property, to take risks and earnprofits. In addition, the existence of competition provides con-sumers in a market economy with a wide array of goods andservices from which to choose, as well as an efficient system ofdetermining how much they cost. One disadvantage of a puremarket system involves concern about those too young, too old,

Circular Flow The inside arrows on the graph show individuals selling thefactors of production to businesses, who use them to produce goods and ser-vices. The outside of the graph shows the flow of money income from busi-nesses to individuals in the form of rents, wages, interest, and profits; and thereturn of money to businesses as consumer spending. What underlying factormakes this circular flow work?

IndividualsBusiness

Consumer Spending for Goods and Services

Production of Goods and Services

Sale or Rent of Resources(Land, Labor, Capital, Entrepreneurship)

Payments for Use of Resources(Wages, Interest, Rents, Profits)

FIGURE 2.5FIGURE 2.5




Meeting LessonObjectives

Assign Section 1 Assessment ashomework or an in-class activity.

Use Interactive Tutor Self-Assessment Software to review Section 1.

LESSON 2: CIRCULAR FLOWSHave students study the

Lesson 2 “Tutorial,” which focuseson circular flows. Students will seehow the basic two-sector modelworks. After students read the“Tutorial,” have them attempt tocomplete the “Economics Lab”dealing with circular flows. The labincludes the third sector—govern-ment—in the circular flow, so havestudents click and drag the correctterms to only the outer circularflow dealing with the business andhousehold sectors.

Supplied in both CD-ROM anddisk formats.

Answer: The circular flow worksbecause the information needed forits operation is scattered among allparticipants in the economy.

Graphic Organizer Ask students to copythis diagram into their notebooks. Then havethem complete the diagram by listing in theappropriate boxes the advantages and disad-vantages of each economic system.

System Advantages Disadvantages

ECON: 10A, 23A, 23F

Page 36: 1A-B, 4A-B, 7A, 10A, 24APage 37: 4A-B, 6A, 20A, 23A, 24A




38 CHAPTER 2

or too sick to work. Many fear that survival for these people wouldbe difficult unless the government, churches, family members, orother organizations stepped in to provide goods and services.

Mixed System A mixed economy combines basic elements ofa pure market economy and a command economy. Most countriesof the world have a mixed economy in which private ownership ofproperty and individual decision making are combined with gov-ernment intervention and regulations. In the United States, mostdecisions are made by individuals reacting as participants withinthe market. However, federal, state, and local governments makelaws protecting private property and regulating certain areas ofbusiness. In Section 2, you’ll learn more about the United States’smixed economy, and the role of government in it.

To summarize, consider why a society has one type of economicsystem and not another. The goals that individuals set for their soci-ety help determine their economic system. The amount of govern-ment involvement in allocatingscarce resources also determines a society’s economic system.

Understanding Key Terms1. Define economic system, traditional economy,

command economy, market economy, market,circular flow of economic activity, mixedeconomy.

Reviewing Objectives2. What three questions must all economic sys-

tems answer?

3. Graphic Organizer In a chart like the onebelow, list the major types of economic systemsand their differences.

Applying Economic Concepts4. Economic Systems A society’s values deter-

mine how it allocates its resources. Identify anddescribe a societal value (for example, stability,certainty, quality, or personal freedom) that influ-ences a traditional economy and a commandeconomy. Then identify and describe a time inAmerican history when each system was used.


Practice and assesskey skills with

Skillbuilder InteractiveWorkbook, Level 2.

1

5. Synthesizing Information Using Figure2.5 as a base, make a circular flow of eco-nomic activity reflecting your own life. Re-place the general information shown onFigure 2.5 with detailed specifics aboutyour income, items you purchase, and so on.For help in using graphs, see page xvi in theEconomic Handbook.

Who Answers Type of 3 Basic System Questions? Advantages Disadvantages

mixed economy: system com-bining characteristics of morethan one type of economy

38

ReteachHave students write two sum-

mary paragraphs—one on the basiceconomic questions and one on thetypes of economic systems.

1. All definitions can be found in the Glossary.2. What should be produced? How should it be

produced? For whom should it be produced?3. Traditional—Tradition answers questions; Adv:

individuals know expectations, strong familyties; Disadv: change is discouraged, few con-sumer choices. Command—Govt leadersanswer questions; Adv: resources reroutedquickly; Disadv: lack of incentives to work hard.Market—Individuals answer questions; Adv:many economic freedoms, many consumer

choices; Disadv: some people are not caredfor.

4. A societal value that influences traditionaleconomy would be based on customs andbeliefs; prior to the arrival of Europeans/earlycolonial period. A societal value that influencesa command economy would be the idea thatgovernment controls all factors of productionand makes all decisions regarding use; duringWorld War II.

5. Circular flow diagrams will differ.

Name Date Class

economic system The way in which a nation uses its resources to satisfy its people’s needs and wants(page 31)

traditional economy A system in which economic decisions are based on customs and beliefs that havebeen handed down from generation to generation (page 34)

command economy A system in which the government controls the factors of production and makes alldecisions about their use (page 34)

market economy a system in which individuals own the factors of production and freely make decisionsabout what to produce and what to consume. (page 35)

market The voluntary exchange of goods and services between buyers and sellers (page 36)

circular flow of economic activity An economic model that shows the factors of production and moneyas flowing continuously between businesses and individuals (page 37)

mixed economy An economic system that combines the characteristics of more than one type of economy (page 38)

KEY TERMS

For use with textbook pages 31–38

EE CONOMIC SYSTEMS

DRAWING FROM EXPERIENCE

What kinds of food does your school offer? Do businesses sell sub sandwiches, pizza, tacos, orother “fast food” on your campus? Are vending machines present? Who decides what foods stu-dents can buy at your school? Who decides what is sold at the school store? The answersdetermine the type of economic system that operates at your school.

2, 1

Reading Essentials and Study Guide 2–1

Have students prepare a two-minute oral report on which of theeconomic systems they would liketo live in and why.

Name Date Class

2, 1

E CONOMIC SYSTEMS

Multiple Choice: In the blank at the left, write the letter of the choice that best com-pletes the statement or answers the question. (10 points each)

6. All economic systems

a. produce the same goods. b. must answer the same three basic questions.c. have the same resources. d. distribute products through majority rule.

7. Almost all economic systems today are

di i l i b i d i

SCORE

A1. economic system

2. traditional economy

3. command economy

4. market

5. mixed economy

Ba. freely chosen activity between buyers and sellers

of goods and services

b. system in which the government controls the factors of production and makes all decisions about their use

c. way in which a nation uses its resources to satisfy its people’s needs and wants

d. system combining characteristics of more than onetype of economy

e. system in which economic decisions are based oncustoms that have been handed down from generation to generation

Matching: Place a letter from Column B in the blank in Column A. (10 points each)

Section Quiz 2–1

ECON: 5A, 10A, 23A, 24B, 24D

ECON: 10A-B,23A, 23D, 24D

Critical Thinking Skills

39


When you make comparisons, you determine similarities and differences among ideas, objects, orevents. Making comparisons is an important skill because it helps you choose among alternatives.

Critical Thinking Skills

Making Comparisons

• Identify or decide whatwill be compared.

• Determine a commonarea or areas in whichcomparisons can bedrawn.

• Look for similarities anddifferences within theseareas.



Learning the SkillTo learn how to make comparisons, follow the steps

listed on the left.

Practicing the SkillRead the passages below, then answer the questions.

“So long as mankind lived by raising crops andherding animals, there was not much need for meas-uring small units of time. The seasons were all impor-tant—to know when to expect the rain, the snow, thesun, the cold. Why bother with hours and minutes?Daylight was the only important time, the only timewhen men could work.”—From Daniel J. Boorstin’s The Discoverers: A History of Man’s Search

to Know His World and Himself, 1985

“Getting workers to work at the appointed clockhours was a recurring problem. In industrial cities, asteam whistle would blow at five in the morning towrest people from their sleep. If that proved insuffi-cient, employers would hire ‘knockers,’ men who wentfrom flat to flat ‘rapping on bedroom windows withlong poles.’ Sometimes the knockers even pulled onstrings ‘dangling from a window and attached to aworker’s toe.’”—From Jeremy Rifkin’s Time Wars: The Primary Conflict in Human

History, 1987

1. What is the topic of these passages?2. How are the passages similar? Different?

Application ActivitySurvey your classmates about an issue in the news.

Summarize the opinions and write a paragraph com-paring the different opinions.

Making ComparisonsWork through the Learning the

Skill steps with students. Then prac-tice the skill by applying it to thetext on traditional, command, andmarket economic systems on pages33–38. ASK: What will be com-pared? (three economic systems) Inwhich common area can compar-isons be drawn? (how the economicsystems answer the basic economicquestions) What similarities or dif-ferences can be seen in this com-mon area? The three economicsystems answer the basic questions dif-ferently: traditional—through tradi-tions; command—by governmentleaders; market—by individuals.Conclude by asking students tocomplete the Practicing the Skilland Application Activity questions.

Answers to Practicing the Skill1. the relationship between time and work2. Both excerpts talk about time. The first mentions that the sun was the chief measure

of time when work was predominantly agricultural. The second talks about the meth-ods used to get workers to work on time in industrial cities.

Application Activity Paragraphs will vary. Encourage students to accompany their para-graphs with a table showing survey results.

AKING COMPARISONSMaking comparisons helps you to understand how ideas, object, or events are similar and dif-ferent. To make a comparison, identify what it is you want to compare. Then determine areasin which you can draw comparisons. Finally, look for similarities and differences within eacharea.

Directions: Read the passage below and complete the table by identifying at least five ways in which theSoviet and United States economies differ.

Before the Soviet Union adopted a market economy, bureaucrats made all economic decisions. The governmentowned all businesses, and government officials told company managers what to produce and how to produce it.Companies had very little incentive to produce high-quality products since consumers had no choice but to purchasefrom them. As a result, the quality of consumer goods was very poor, and many goods were in short supply. Peoplehad to wait in long lines just to purchase food.

In the United States and other market economies, businesses are privately owned. Individual producers decide whatproducts to produce and control the factors of production. Companies compete with other companies to win overcustomers and gain market share. Any company that produces shoddy products eventually loses customers and goesout of business. Companies that produce products that consumers want to buy earn profits and prosper. Shortages ofgoods are rare in these economies, and consumers are able to choose from a large variety of products.

Name Date Class

11

M

Attribute Soviet Economy U.S. Economy

1. competition among producers none fierce

2.

3.

4.

5.

Reinforcing Economic Skills 11

Glencoe SkillbuilderInteractive Workbook,Level 2

Page 38: 4A-B, 5A, 6A-B, 10A, 15A,20A, 21B, 23A, 23D, 24A

Page 39: 23A, 24C-D


ECON: 5A, 10A, 23A, 24A




MultimediaDaily Focus Transparency 7Vocabulary PuzzleMaker CD-ROMInteractive Tutor Self-Assessment SoftwareExamView® Pro Testmaker

MindJogger VideoquizPresentation Plus!


40 CHAPTER 2

Terms to Know• capitalism• laissez-faire• free enterprise system• profit• profit incentive• private property• competition

Reading Objectives1. What is the role of govern-

ment in our free enterpriseeconomy?

2. How do freedom of enter-prise and freedom of choice apply to theAmerican economy?

3. What roles do private prop-erty, the profit incentive,and competition play in theAmerican economy?

READER’S GUIDE

Perhaps you wouldn’t buy a soft drink called “Wisdom,”but someone will. That’s one of the characteristics of amarket economy—freedom of choice. A seller can choose

to make or not make a product, and you can choose to buy it or not.

In this section you’ll learn that a pure market economic systemhas six major characteristics: (1) little or no government control,(2) freedom of enterprise, (3) freedom of choice, (4) private prop-erty, (5) the profit incentive, and (6) competition. These character-istics are interrelated, and all are present in the American economyto varying degrees.

BUSINESS WEEK, MARCH 22, 1999

Ready to take the next stepbeyond Coke and Pepsi, orangeand grape, tea and fruit drinks?Then how about some Wisdom ormaybe a little Eros? Those aren’tmetaphysical thirst quenchers,but the real thing, examples ofthe latest trend in soft drinks:mystery concoctions that give lit-tle or no hint of what flavor is inthe bottle.

2

40


the major components of a marketeconomic system and how theyapply to the American free enter-prise system.


Preteaching VocabularyRead aloud the Glossary defini-

tions of the Terms to Know. Afterreading each definition, call onvolunteers to identify the termthat was defined.

Vocabulary PuzzleMaker

READER’S GUIDE


This activity is also availableas a blackline master.


T HE MARKET ECONOMY

1. How many different businesses can you identify in this photograph? Who do you think owns them?

2. How would the local economy be affected if another appliancestore opened across the street?

77

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ECON: 24A

41

Limited Role of GovernmentIn his book An Inquiry into the Nature and

Causes of the Wealth of Nations, economist AdamSmith in 1776 described a system in which gov-ernment has little to do with a nation’s economicactivity. He said that individuals left on their ownwould work for their own self-interest. In doingso, they would be guided as if by an “invisiblehand” to use resources efficiently and thusachieve the maximum good for society.

Smith’s version of the ideal economic sys-tem is called capitalism, another name for themarket system. Pure capitalism has also beencalled a laissez-faire system. The French termmeans “let [people] do [as they choose].” Apure capitalist system is one in which the gov-ernment lets people and businesses maketheir own economic decisions without govern-ment constraints. Capitalism as practiced inthe United States today would be best definedas an economic system in which privateindividuals own the factors of production,but decide how to use them within legislatedlimits. See Figure 2.6.

Role of Government The government acts as a provider ofpublic services, such as maintaining our national parks. It also acts asprotector in the form of food and drug inspection. List three moreexamples of how the government is involved in our economy.

2.62.6

Job Description■ Ensures that

food, water,and air meetgovernmentstandards

■ Checks cleanli-ness and safetyof food andbeverages

Qualifications■ Bachelor’s

degree inenvironmentalhealth or bio-logical sciences

■ Licensed byexaminingboards

Average Yearly Salary: $58,000Job Outlook: Below average

CAREERSEnvironmentalHealth Inspector

—Occupational Outlook Handbook, 2000–01

capitalism: economic system inwhich private individuals own thefactors of production and decidehow to use them within legislatedlimits

laissez-faire: economic systemin which the government mini-mizes its interference with theeconomy



Guided PracticeL2 Understanding Ideas Write thefollowing on the board: “Freedom ofEnterprise,” “Freedom of Choice,”“Private Property,” “Profit Motive,”and “Competition.” Call on volun-teers to explain how governmentlimits each of these in the Americanfree enterprise system. Noteresponses under the appropriateheading. Then ask students to usethe information to write a brief essaytitled “Government Involvement inthe American Economy.”

L ECTURE LAUNCHERThe famous car manufacturer Henry Ford once said, “Anyone can have any color they want,as long as it’s black.” Offering cars of different colors, General Motors surpassed the FordCompany by 1929 and became the leading American car manufacturer. Was Henry Ford freeto sell his cars in black only?

I. Limited Role of Government

A. Adam Smith described an economic system called capitalism.

B. Pure capitalism can be referred to as a laissez-faire system, or a system where peopleand businesses make economic decisions without government constraints.

C. Smith’s ideas influenced the United States’ basic economic system.


Why might less government involvement be helpful to an economy? (Student respons-es should demonstrate an understanding of Adam Smith’s idea of the “invisible hand.”)

II. Freedom of Enterprise

A. Individuals can own and control the factors of production.

B Th i t f

2-2

PAGES 41–42

PAGE 42


Answer: Typical responses mayinclude: Federal government regu-lates nation’s money and bankingsystem, workplace safety, and envi-ronmental pollution. It also pro-vides social programs such as SocialSecurity and Medicare. State andlocal governments play a role ineducation, job training, recreation,support for arts, care for elderly.

Attention Disorders To help students grasp the main idea, have them create a wordweb as they read the section. Direct students to write the section title as the center of theweb and to include important ideas in ovals around the center. Mention that supportingdetails for main ideas should be included in ovals connected to main idea ovals. By takingsmall pieces of information at a time and analyzing their importance, students with atten-tion problems are better able to stay focused.

Refer to Inclusion for the Social Studies Classroom Strategies and Activities for students with different learning styles.


ECON: 23A, 23F

ECON: 4A-B, 6B, 15A-B, 23A, 23D, 24B, 24D

Page 40: 1A, 2A, 4A-B, 10A, 15A,20A, 23A, 24A

Page 41: 1A-B, 2A, 4A-B, 10A,15A, 20A, 23A, 24A




free enterprise system: eco-nomic system in which individualsown the factors of production anddecide how to use them withinlegal limits; same as capitalism

Smith’s ideas influenced the Founders of the United States,who limited the role of government mainly to national defenseand keeping the peace. Since the 1880s, however, the role of gov-ernment—federal, state, and local—has increased significantly.Among other things, federal agencies regulate the quality of vari-ous foods and drugs, watch over the nation’s money and bankingsystem, inspect workplaces for hazardous conditions, and guardagainst damage to the environment. The federal government alsouses tax revenues to provide social programs such as SocialSecurity and Medicare. State and local governments haveexpanded their roles in such areas as education, job training,recreation, and care for the elderly.

Freedom of EnterpriseAs well as capitalist, the American economy is also called a free

enterprise system. This term emphasizes that individuals are freeto own and control the factors of production. If you go into busi-ness for yourself, you may become rich selling your product.However, you may instead lose money, because you—or any entre-preneur—have no guarantee of success.

The government places certain legal restrictions on freedomof enterprise. For instance, just because you know how to fixcars does not mean that you can set up an automobile-repairbusiness in your backyard. Zoning regulations, child-labor laws,hazardous waste disposal rules, and other regulations limit freeenterprise to protect you and your neighbors.

Freedom of ChoiceFreedom of choice is the other side of freedom of enterprise.

It means that buyers, not sellers, make the decisions about whatshould be produced. The success or failure of a good or service inthe marketplace depends on individuals freely choosing what theywant to buy. If a music company releases a new CD, but few peoplebuy it, the music company most likely will not sign that particulargroup again. Buyers have signaled that they do not like that group.

Although buyers are free to make choices, the marketplace hasbecome increasingly complex. The government has intervened invarious areas of the economy to protect buyers. As shown inFigure 2.7, laws set safety standards for such things as toys, elec-tric appliances, and automobiles. In industries dominated by justa few companies—such as public utilities selling natural gas orelectricity—the government regulates the prices they may charge.

42 CHAPTER 2

42

IndependentPracticeL2 Writing Editorials Ask studentsto write a newspaper editorial sup-porting or opposing the followingstatement: The government shouldplay a greater role in the Americaneconomy.

Select students to read their edi-torials to the class. Use these read-ings as the starting point for a classdiscussion on the role of govern-ment in American free enterprise.

Organize students into groups to conduct a survey. Have groups interview fellow stu-dents, friends, neighbors, local business leaders, shoppers at a local mall, and so on todiscover what the term free enterprise means to them. Have each group collate its findingsand present them in an oral report to the class. Use the presentations as a starting pointfor a class discussion on why people might have different views of free enterprise.

BLOCK SCHEDULING

Cooperative Learning

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Guided Reading Activities 5

Name Date Class

For use with the textbook pages 40–44

C HARACTERISTICS OF THE AMERICAN ECONOMY

RECALLING THE FACTS

Directions: Use the information in your textbook to answer the questions.

1. What are the six major characteristics of a pure market economy?

a. __________________________ d. __________________________

b. __________________________ e. __________________________

c. __________________________ f. __________________________

2. What is a pure capitalistic system?

3. How can capitalism best be described in the United States today?

4. What do individuals own and control under a free enterprise system?

5. How does the government in the United States limit choices in order to protect buyers?

6. What is profit?

7. Why is the principal of private property important for capitalism?

8. What are the effects of competition?

2-2


ECON: 15A-B, 23A, 23D, 24B, 24D

ECON: 4A-B, 23A, 24C-D

43

profit: money left after all thecosts of production—wages,rents, interest, and taxes—havebeen paid

profit incentive: desire to makemoney that motivates people toproduce and sell goods andservices

private property: whatever isowned by individuals rather thanby government

Profit IncentiveWhen a person invests time, know-how, money, and other cap-

ital resources in a business, that investment is made with the ideaof making a profit. Profit is the money left after all the costs ofproduction have been paid, including wages, rents, interest, andtaxes. The desire to make a profit is called the profit incentive.It is mainly this desire that motivates entrepreneurs to establishnew businesses and produce new kinds of goods and services.

The risk of failing is also part of the free enterprise system. Whathappens when profits are not realized—when businesses fail? Lossesare a signal to move resources elsewhere. Thus, the interaction ofboth profits and losses leads to an economy that is more efficient,adaptable to change, and continuously growing.

Private PropertyOne of the most important characteristics of capitalism is the

existence of private property, or property that is held by individu-als or groups rather than by the federal, state, or local govern-ments. You as an individual are free to buy whatever you canafford, whether it is land, a business, an automobile, or baseballcards. You can also control how, when, and by whom your prop-erty is used. What are called the rights of property, however, areactually the rights of humans to risk investment, own productiveassets, learn new ways of producing, and then to enjoythe benefits if these choices result in profits.

The Founders of the United States recognized thatsuch rights must not be violated, because these rights arethe invisible engine for creating wealth and prosperityfor all. The Constitution guarantees an owner’s right toprivate property and its use. Thus, in principle, no levelof government in the United States can seize or use pri-vate property, at least not without paying the owners.

Freedom of Choice Consumers in a market economy have theadvantage of being able to choose among products. Laws require pro-ducers to make sure that the products consumers choose are safe ones.How do consumers’ choices determine what will be produced?

2.72.7



Meeting LessonObjectives



Answer: By making purchasingchoices, consumers signal what theywill or will not buy.

The Origins of Laissez-Faire The economy most closely linked with the term laissez-faire is that of the United States. However, the term was first used by a group of Frencheconomists, known as the physiocrats, in the 1700s. They believed in free trade, and theirslogan was laissez-faire, laissez passez, which, loosely translated, means “let us alone, letus pass unhindered.” The term came to mean government noninterference in economicaffairs through the writings of British economist Adam Smith.

Extending the Content


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Section Quiz 5


6. Since the 1880s, the role of government in the United States has

a. decreased. b. increased significantly.c. been eliminated. d. had no impact on the economy.

7. Which of the following describes a free enterprise system?

a. Individuals are free to own and control the factors of production.b. Government owns and controls the factors of production.c. Businesses cannot make a profit.d. There are no legal restrictions on freedom of enterprise.

8. In a free enterprise system, who makes the decisions about what should be produced?

a. sellers b. entrepreneursc. consumers d. government

9. What motivates people to establish new businesses or expand existing ones?

a. private property b. government regulationsc. freedom of choice d. profit incentive

10. Competition forces businesses to

a. keep prices low. b. raise prices.c. lower the quality of their products. d. raise the costs of production.

SCORE

A1. capitalism

2. laissez-faire

3. profit

4. private property

5. competition

Ba. money left over after all the costs of production

have been paid

b. rivalry among producers or sellers of similar goodsand services to win more business

c. economic system in which the government lets people do as they choose

d. economic system in which private individuals ownfactors of production

e. whatever is owned by individuals rather than bygovernment


Name Date Class

2, 2

Section Quiz 2–2

ECON: 19APage 42: 2D, 3B, 4A-B, 7A, 15A-B,

19A, 21A-B, 24A, 25BPage 43: 1A, 3A-B, 4A-B, 15A,

20A, 24A




44 CHAPTER 2

competition: rivalry among pro-ducers or sellers of similar goodsand services to win more business

CompetitionIn a free enterprise system, the lure of profits encourages

competition—the rivalry among producers of similar products towin more business by offering lower prices or better quality.Effective competition requires a large number of independent sell-ers, which means that no single company can noticeably affect theprice of a particular product or service. If one company raises itsprices, potential customers can simply go to other sellers.

Competition leads to an efficient use of resources. How so?Businesses have to keep prices low enough to attract buyers, yethigh enough to make a profit. This forces businesses to keeptheir costs of production as low as possible.

For competition to exist, barriers to enter and exit fromindustries must be weak. Businesses must be free to expand intoother industries. For the most part, the United States has weakbarriers to entry and exit. Yet some industries have tougher bar-riers to entry. For example, a per-son cannot become a physicianuntil he or she has received alicense from a state government.

Understanding Key Terms1. Define capitalism, laissez-faire, free enterprise

system, profit, profit incentive, private property,competition.

Reviewing Objectives2. What is the role of government in our free

enterprise economy?

3. How do freedom of enterprise and freedom ofchoice apply to the American economy?

4. Graphic Organizer Create a chart like theone in the next column to summarize the rolesthat profit incentive, private property, and com-petition play in the American economy.

Applying Economic Concepts5. Competition Describe a situation in which a

lack of competition caused you to pay more fora good or service.




2

6. Synthesizing Information Shoe Store Aoffers a pair of high-top sneakers for $48,whereas a competitor—Shoe Store B—offersthe same shoe at 25 percent off their regularprice of $62. From which store should youbuy the shoes? For help in understandingpercentages, see page xix in the EconomicHandbook.

Characteristic Definition Role in Capitalism

44

ReteachAsk students to imagine they

have a friend in the People’sRepublic of China. Ask them towrite a letter to their friend explain-ing the six characteristics of a mar-ket economy and how thesecharacteristics relate to theAmerican free enterprise system.

1. All definitions can be found in the Glossary.2. Government plays a limited role.3. Freedom of enterprise: Americans may estab-

lish businesses, decide production methodsand levels, and take risks in seeking profits.Freedom of choice: American consumers arefree to make choices and, therefore, they—notsellers—make the ultimate decisions aboutwhat should be produced.

4. Profit Incentive: motivates entrepreneurs to

establish new businesses, expand existingones, and change kinds of goods and servicesproduced; Private Property: individuals free tobuy whatever they can afford; also control how,when, and by whom property is used;Competition: leads to an efficient use ofresources

5. Answers will vary.6. from Shoe Store B, because 25 percent off $62

($46.50) is cheaper than $48

Ask students to discuss the fol-lowing question: What are the basicprinciples of the United States freeenterprise system and what makesthe system unique?

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Study Guide 11

Name Date Class

2, 2

capitalism An economic system in which private individuals own the factors of production and decidehow to use them within certain legal limits (page 41)

laissez-faire A system in which government lets people and businesses make their own decisions withoutputting controls and restrictions on them (page 41)

free enterprise system System in which individuals are free to own the factors of production and decidehow to use them within certain legal limits set by government; another name for capitalism (page 42)

profit The money left after all the costs of production have been paid (page 43)

profit incentive The desire to make a profit, which motivates business owners to produce and sell goodsand services (page 43)

private property Whatever is owned by individuals or groups rather than by government (page 43)

competition Rivalry among producers or sellers of similar products to win more business (page 44)


If you wanted to start your own business, what would it be? Would you hire some school friendsand paint houses during summer vacation. Could you bake cookies in your kitchen at home andsell them to a local store? Perhaps you already are in business, cutting lawns or shoveling snowfrom driveways or parking lots. Your ability to make these choices is a result of the American freeenterprise system.

This section focuses on the six characteristics of a pure market system and shows how they arepresent in the American economy.

ORGANIZING YOUR THOUGHTS

Use the diagram below to help you take notes as you read the summaries that follow. Thinkabout the six characteristics of capitalism.

CompetitionFreedom of _________ .

_________ IncentiveCapitalismFree _________ System

_________ IncentiveLimited _________ .



KEY TERMS


ECON: 4A-B,10A-B, 23A, 23D

ECON: 4A-B, 10A, 23A

45

45

■ Born in Kirkaldy,County Fife,Scotland

■ Called the founder of moderneconomics

■ Teacher at theUniversity ofGlasgow

■ Lectured and wrote on moral philosophy

■ Wrote An Inquiryinto the Nature andCauses of theWealth of Nations(1776)

In An Inquiry into the Nature andCauses of the Wealth of Nations,

Adam Smith argues against gov-ernment interference in the mar-ketplace. He believed thatindividuals, seeking profit, endup benefiting society as a whole.

“[E]very individual, therefore,endeavours as much as he can [todirect his resources toward his ownbusiness] so that its produce maybe of the greatest value; every indi-vidual . . . neither intends to pro-mote the public interest, nor knowshow much he is promoting it. . . .He intends only his own gain, andhe is in this, as in many othercases, led by an invisible hand topromote an end which was no partof his intention. . . . By pursuinghis own interest he frequently pro-motes that of the society more effec-tually than when he really intendsto promote it.”

Smith criticized governmentofficials who had “the folly” toattempt to direct people in whatthey should produce. He believed

that no single person could directresources more efficiently thanindividuals watching out for theirown self-interest.

“It is the maxim of every pru-dent master of a family, never toattempt to make at home what itwill cost him more to make than tobuy. The ta[i]lor does not attempt tomake his own shoes, but buys themof the shoemaker. The shoemakerdoes not attempt to make his ownclothes, but employs a ta[i]lor. Thefarmer attempts to make neither theone nor the other, but employs thosedifferent [craftsmen]. All of themfind it [in their best interests] toemploy their whole industry in away in which they have someadvantage over their neighbours,and to purchase . . . whatever elsethey have occasion for.”Checking for Understanding

1. How does an “invisible hand” direct-ing an individual’s economic choicesbenefit society as a whole?

2. In Smith’s opinion, why should peo-ple not attempt to “employ theirresources” in many industries?

Adam SmithECONOMIST (1723–1790)

45

BackgroundWhile working as a professor in

Scotland, Adam Smith developed aclose friendship with the Scottishphilosopher David Hume. Hume’sideas greatly influenced Smith’sthinking on philosophy and eco-nomics. The work of the Frencheconomists known as the phys-iocrats also contributed greatly toSmith’s ideas on economics.

Answers to Checking for Understanding1. Smith suggests that the invisible hand of self-interest often promotes the good of

society.2. Smith notes that it is in individuals’ best interests to put all their resources into what

they are best at and, with the profits that they make, buy the things they cannotmake.

As students read the excerptsfrom The Wealth of Nations, havethem note how Smith suggests thatthe “invisible hand” of self-interestbenefits not only the individual, butalso society at large. Then point outthat Smith’s ideas still wield consid-erable influence among economiststoday.

Adam Smith was veryimpressed with the Americancolonies. He wrote that theyseemed “very likely to become oneof the most formidable [nations]that ever was in the world.”

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MultimediaDaily Focus Transparency 8Vocabulary PuzzleMaker CD-ROMInteractive Tutor Self-Assessment SoftwareExamView® Pro Testmaker

MindJogger VideoquizPresentation Plus!


46 CHAPTER 2

Terms to Know• economic efficiency• economic equity• standard of living• economic growth

Reading Objectives1. What are the major goals of

a market economy?

2. How can people balanceeconomic rights with eco-nomic responsibilities?

READER’S GUIDE

Nations have values, and they set goals for themselves basedon those values. The United States is no exception. Itsgoals are evident in the supreme law of the land—the

Constitution—as well as in its government policies and in theactions of people like you. In this section you’ll learn how theAmerican economy strives to “promote the general Welfare.”

Goals of Free Enterprise The United States has a free enterprise, or capitalist, system.

Therefore, the major characteristics of a market economy shouldbe evident in its goals. Among the national goals of Americansare freedom, efficiency, equity, security, stability, and growth.Although these goals have ethical, social, and religious elements,let’s focus on their economic implications instead.

Economic Freedom The goal of economic freedom is to alloweach member of society to make choices. Americans have the high-est degree of freedom in the world to start their own businesses,to own private property, to make decisions in the marketplace,

PREAMBLE TO THE CONSTITUTION OF THE UNITED STATES

We, the people of the United States, in Order toform a more perfect Union, establish Justice, insuredomestic Tranquility, provide for the commondefense, promote the general Welfare, andsecure the Blessings of Liberty to ourselvesand our Posterity, do ordain and establishthis Constitution for the United States.

3

46


the major goals of the United Stateseconomy and the benefits andresponsibilities of individuals in afree enterprise system.


Preteaching VocabularyAsk students to use the Glossary

to find definitions of the Terms toKnow. Then have them use theterms correctly in sentences.

Vocabulary PuzzleMaker

READER’S GUIDE


This activity is also availableas a blackline master.


N ATIONAL ECONOMIC GOALS

1. Which goal or goals in the Preamble do you think include economic goals?

2. How might the economic goal of economic growth be related tothe use of the word “posterity” in the Preamble?

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ECON: 24A

47

economic efficiency: wise useof available resources so thatcosts do not exceed benefits

economic equity: the attempt tobalance an economic policy sothat everyone benefits fairly

and to pursue other economic choices. People may choose towork nights or part-time, to have several jobs, and to move fromplace to place in search of work.

Along with this freedom come certain costs as shown in Figure2.8. In particular, individuals must normally accept the conse-quences of their decisions in our free enterprise system. If an entre-preneur starts a business that fails, for example, the governmentusually won’t help out.

Economic Efficiency Using our limited resources wisely isthe goal of economic efficiency. Because of scarcity, if the fac-tors of production are wasted, fewer goods and services overallwill be produced. We must always be watchful that the costs ofour economic actions do not exceed the benefits.

Economic Equity The issue of fairness underscoresthe goal of economic equity. Americans want their

economic system to be fair and just. That’s why weencourage our policy makers to pass laws such as

those dealing with equal pay forequal work, fairness in hiringpractices, and help for disabledworkers. See Figure 2.9.

Economic Freedom Alongwith the freedom to strive for profitcomes the freedom to fail. Whateconomic choices will you be freeto make upon graduating fromhigh school?

2.82.8


Economic Equity Laws requiring employers to hiredisabled persons and minorities aim to promote economicequity. What laws do you think should be passed tomake our economy more fair? Explain.

2.92.9



Guided PracticeL2 Analyzing Ideas Review the sixeconomic goals with students. Thenask students which, if any, of thesegoals might conflict. Encourage themto explain why the conflict exists.Finally, lead students in a discussionon how trade-offs might resolvethese conflicts.

Answer: Most students will notethat they will choose whether towork or to continue their education.

Answer: Ensure that studentsexplain why the laws should bepassed and how the legislationwould increase economic equity.

L ECTURE LAUNCHERIn 1994, only about 39% of the voting-age population participated in the Federal elections. In1996, a presidential election year, only 49% participated. Of those who voted in 1996, about49% cast their vote for Bill Clinton. Therefore, in 1996 only 24% of the voting-age popula-tion actually voted for the candidate who would become our president. Some people thingthe low participation rate was because people were generally satisfied with the economy. Doyou think a major economic problem or a recession could result in higher voter turn out?

I. Goals of a Free Enterprise

A. To allow individuals to make choices

B. To use limited resources wisely

C. To exhibit fairness—protected by laws

D. To provide protection for risks we cannot control

E. To reach a stable economy

F. To grow and expand the economy


Sometimes, to fully meet a particular goal it is necessary to sacrifice another. Rankthe six economic goals outlined above in order of importance. Explain your ranking.(Students should be able to explain why they ranked the goals in the order they did. Theirexplanations should demonstrate an understanding of trade offs among goals affects each

2-3

PAGES 46–48


Reading Disabilities Some students have difficulty differentiating between importantand trivial facts. Direct these students to write one important fact or detail for each para-graph they read. Review facts with students to make sure that they grasp the essentialelements of the section.

Refer to Inclusion for the Social Studies Classroom Strategies and Activities forstudents with different learning styles.


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Student Edition TEKSECON: 23A



48 CHAPTER 2

standard of living: the materialwell-being of an individual, group,or nation measured by how welltheir necessities and luxuries aresatisfied

economic growth: expansion ofthe economy to produce moregoods, jobs, and wealth

Economic Security Americansunderstand that making profits oftenmeans taking risks. Yet we also wantprotection against risks beyond ourcontrol—accidents on the job, naturaldisasters, business and bank failures,poverty in old age. Our economic sys-tem provides such security through anumber of government social programs.

Economic Stability The goal of eco-nomic stability seeks to reduce extremeups and downs in the standard ofliving—the material well-being of an indi-vidual, group, or nation. The standard ofliving is measured by the average valueof goods and services used by the aver-age citizen during a given period of time.The United States has more individualsenjoying a high standard of living thanalmost anywhere in the world.

Economic Growth Economic growth means producingincreasing amounts of goods and services over the long term. Asthe population increases, the economy must also expand in orderto provide for additional needs and wants. All nations have eco-nomic growth as a goal because it helps meet other goals.

Trade-Offs Among Goals In a world of scarcity, achievingnational goals requires trade-offs. For example, any program thatprovides economic security—Medicare, Social Security, or unem-ployment compensation—uses resources that could have beendirected elsewhere.

A plan of action must be developed in order to accomplish thenation’s goals. Such a plan often involves economic policy-makingby elected or appointed officials who must face the reality ofscarcity. Understanding this will help you realize that not allpolitical desires can be turned into economic reality.

Rights and ResponsibilitiesThe American free enterprise system bestows numerous eco-

nomic rights and protections on individuals like you. You have

Markets exist for just about everything—computers,natural gas, shoes, labor services, and so on. Manymarkets used to be confined to specific geographicalareas. Today the Internet has created a virtual world-wide marketplace for many goods and services. Justconsider recorded music. Since the introduction of asecure music standard, those connected to the Internetanywhere in the world can buy and download songs.Information about jobs available anywhere on theearth is also easily found via the Internet. You mayanswer a job announcement, interview, and be hiredwithout ever leaving your desk! ■

The Cybermarket

48

IndependentPracticeL2 Analyzing Information Havestudents work in groups to rank theeconomic goals in order of impor-tance. After group members havecome to a consensus, have them list the goals and write a paragraphjustifying the ranking.

BLOCK SCHEDULING


T HE GOALS OF THE NATION

OUTLINING

Directions: Locate the heading in your textbook. Then use the information under the headings to help youwrite each answer.

I. Goals of a Free Enterprise Economy

A. Introduction

1. The United States has what kind of economic system?

2. What are the national goals for the American economic system?

B. Economic Freedom

1. What is the goal of economic freedom?

2. What risk is involved in having economic freedom?

C. Economic Efficiency—What happens if the factors of production in an economic system are wasted?

D. Economic Equity—What are some policies the American government has passed to help create a fair and justeconomic system?

Name Date Class

2-3




Name Date Class

2, 3



6. The goal of economic freedom is to

a. allow the government to control the economy. b. limit competition.c. allow each member of society to make choices. d. prevent businesses from failing.

7. When the benefits of an economic action exceed the costs

a. economic efficiency increases. b. economic efficiency decreases.

SCORE

A1. economic efficiency

2. economic equity


4. economic growth

5. economic responsibility

Ba. material well-being of an individual, group, or

nation measured by how well necessities and luxuries are satisfied

b. expansion of the economy to produce more goods,jobs, and wealth

c. wise use of available resources so that costs do notexceed benefits

d. obligation of individuals in a free enterprise systemto function as productive members of society

e. the attempt to balance an economic policy so thateveryone benefits fairly


Section Quiz 2–3

New Economic Goals By and large, most Americans are in agreement on the economicgoals discussed in this section. As society changes, however, so too may the values itholds. For example, there has been some discussion recently as to whether a clean envi-ronment or the protection of endangered animals should be among our nation’s economicgoals.

Relevant Issues in Economics

ECON: 16A,23A, 23D, 24D

ECON: 21A-B

4949


the right to enter into just about any profession or business youwant. You have the right to work very little or to become a“workaholic.” You have the right to buy those products andbrands that you like and to reject all others.

A well-functioning free enterprise system will not continue, how-ever, if individuals do not take on certain economic responsibilities.The first, of course, is to be able to support yourself and your family.As shown in Figure 2.10, you have a responsibility to use youreducation in a reasonable manner that helps you become a produc-tive member of the free enterprise system.

Finally, because government has become such an important partof our economy, individuals in our system have the responsibilityof electing responsible government officials. This responsibilityrequires both the knowledge of possible government policies andthe ability to analyze the consequences of those policies.

Understanding Key Terms1. Define economic efficiency, economic equity,

standard of living, economic growth.

Reviewing Objectives2. Graphic Organizer Create a diagram like the

one below to list and describe the major goalsof a market economy.

3. How can people balance economic rights witheconomic responsibilities?

Applying Economic Concepts4. Economic Goals How can the goal of eco-

nomic equity conflict with the goal of economicfreedom? Provide an example for yourexplanation.

5. Summarizing Information Summarizethe goals of the American economy in aphoto essay or through song lyrics. Shareyour presentation with the rest of the class.Ask class members to identify the goals evi-dent in your presentation.




3

Economic Responsibility “There is no such thing as a free lunch.” This quote, often usedin economics, means that nothing is free—including your education. Tax dollars pay for you to learnhow to become a productive citizen. What other economic responsibilities do you have?

2.102.10

Goals of U.S.Economy



ReteachHave students summarize

the main ideas of Section 3 in anoutline.

1. All definitions can be found in the Glossary.2. In the outer ovals, students should list and

describe freedom, efficiency, equity, security,stability, and growth.

3. by supporting themselves and their families,using their education wisely to become a pro-ductive person, and electing responsible gov-ernment officials

4. Most students will suggest that economic poli-cies to promote equity might limit economicfreedom. A possible example is that a raise inthe minimum wage may be proposed toachieve greater economic equity. However, itlimits the freedom of employers to pay whatthey think are fair wages.

5. Essays and songs will vary.

Answer: Answers may vary. Moststudents will mention supportingthemselves and their families.Others might mention the responsi-bility of taking part in the electoralprocess.

Name Date Class

KEY TERMS

2, 3

economic efficiency Wise use of available resources so that costs are not greater than benefits (page 47)

economic equity The attempt to balance an economic policy so that everyone benefits fairly (page 47)

standard of living The material well-being or an individual , group, or nation measured by how well theirneeds and wants are satisfied (page 48)

economic growth Expansion of the economy by producing more goods and services over the long term(page 48)




One of the reasons you are in high school instead of working full-time or just “hanging out” isbecause you realize that your education is your investment in the future. You know that gettingan education will benefit you economically by helping you get a better job and acquire more ofthe goods and services you want and need. But did you know that by being in school, you arehelping to ensure the success of the nation’s economic system?

This section focuses on how the American free enterprise system illustrates the values and goalsof the nation and its people.

ORGANIZING YOUR THOUGHTS

KEY TERMS


Ask students to make brief oralpresentations supporting or oppos-ing the following statement:National economic goals are more important than individualeconomic freedoms.

ECON: 23A

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SPOTLIGHT

SPOTLIGHT ON THE ECONOMY

50 CHAPTER 2

In 1782, when the bald eagle became theAmerican symbol, it ruled the skies—25,000 to

75,000 patrolled what would become the lower48 states. By the early 1960s, however, fewer than450 nesting pairs remained. Defenseless againsthuman predators, the bald eagle was approach-ing extinction.

. . . [O]n December 28, 1973, PresidentRichard M. Nixon took decisive actionto prevent that. He signed theEndangered Species Act. Despite theoverwhelming support for the newlaw, it quickly became the most reviled

piece of environmental legislationever enacted.

With his signature, Nixonhad protected not only the baldeagle but also scores of otherweird animals and plants. . . .

Environmentalists seized onthe Act as a powerful weapon to protect sensitivehabitats; meanwhile developers, loggers, and cat-tle ranchers, to name a few, howled in pain. . . .[C]ontroversy over protecting the spotted owl

threatened to close downlogging on millions ofacres of forest in the PacificNorthwest. . . .

Conservative critics have denounced the Act,arguing that it gives Fish & Wildlife Servicebiologists unlimited power to block develop-ment—without paying for it. They say that if thegovernment cuts land values by blocking devel-opment, it should compensate the owners.

. . . Flexible interpretation of the Act nowallows landowners and developers to destroysome endangered-species habitat if they agreeto preserve or restore habitat for the speciessomewhere else. Adding more incentives, suchas tax breaks, could also ease critics’ concerns.

For all its shortcomings, the Act has slowedthe decline of imperiled species. A few havebeen saved, including the bald eagle. . . .—Reprinted from January 18, 1999 issue of Business Week by special

permission, copyright © 1999 by The McGraw-Hill Companies, Inc.

Think About It1. What argument do environmentalists make in sup-

port of the Endangered Species Act?

2. What argument do critics make against the Act?

3. What two economic goals are in conflict in thissituation?

Check It Out! In this chapter you learned about six eco-nomic goals our nation strives to meet. The followingarticle points out how the actions of people and the gov-ernment may cause some economic goals to conflict.

Spotted owl

Bald eagle

Save the Species—butAdd Incentives

Save the Species—butAdd Incentives

50

The Endangered Species Act pro-tects not only animals native to theUnited States, but also foreign ani-mals. At present, more than 500foreign animals are protected by theact—including the elephant and therhinoceros. The Act outlaws thebuying, selling, or transporting ofthese protected animals without aspecial license.

Answers to Think About It

At present, there are about5,748 nesting pairs of bald eaglesthroughout the United States.Even if it were removed from theprotected list, the bald eagle’sstatus would be watched by stateand federal wildlife agencies.And, if at any time its survivalappeared threatened, it would bereturned to the list.

1. It is a powerful weapon to protect sensitive habitats.2. Conservative critics argue that it gives Fish & Wildlife Service biologists unlimited

power to block development—without paying for it. Some environmentalists criticizethe Act for doing too little, too late, to protect wildlife and its habitats.

3. economic freedom and economic equity

To find up-to-date news andanalysis on the economy, busi-ness, technology, markets,entrepreneurs, investments,and finance, have studentssearch feature articles and spe-cial reports on the BusinessWeek Web site.www.businessweek.com

ECON: 15A

http://www.businessweek.com

51


Economic Systems

• Every type of economic system must answer threebasic questions: What goods and services shouldbe produced? How should they be produced? Whoshould share in what is produced?

• There are four types of economic systems: tradi-tional, command, market, and mixed.

• In a traditional economy, economic decisions arebased on customs and beliefs handed down fromgeneration to generation.

• In a command economy, government leaders con-trol the factors of production and, therefore, makeall decisions about their use.

• In a market economy, individuals looking out fortheir own and their families’ best interests make theeconomic decisions.

• Most countries of the world have a mixed economyin which private ownership of property and individ-ual decision making are combined with governmentregulations.

Characteristics of theAmerican Economy

• A pure market economic system has six majorcharacteristics: little or no government control,freedom of enterprise, freedom of choice, privateproperty, the profit incentive, and competition.

• Capitalism, as practiced in the United States, hasprivate individuals owning the factors of productionbut using them within the limits of the law.

• The profit incentive is the desire that motivatesentrepreneurs to establish new businesses, expandexisting ones, and change the kinds of goods andservices produced.

• One of the most important characteristics of capi-talism is the existence of private property.

• Competition leads to an efficient use of resources,better goods and services, and low prices forconsumers.

The Goals of the Nation

• The United States has a free enterprise, or capital-ist, economic system.

• Among the economic goals of Americans are eco-nomic freedom, economic efficiency, economicequity, economic security, economic stability, andeconomic growth.

• A well-functioning free enterprise system requiresindividuals to take on certain economic responsibil-ities, including becoming productive members ofsociety and electing responsible governmentofficials.

C H A P T E R

SECTION 1

SECTION 2

SECTION 3

Chapter Overview Visit the Economics Today and Tomorrow Web site at tx.ett.glencoe.comand click on Chapter 2—Chapter Overviews toreview chapter information.

2

Use the Chapter 2 Summary topreview, review, condense, orreteach the chapter.

Preview/ReviewVocabulary PuzzleMaker

CD-ROM reinforces the key termsused in Chapter 2.

Interactive Tutor Self-Assess-ment Software allows students toreview Chapter 2 content.

CondenseHave students listen to the

Chapter 2 Audio Program (alsoavailable in Spanish) in the TCR.Assign the Chapter 2 Audio ProgramActivity and give students the Chap-ter 2 Audio Program Test.

ReteachHave students com-

plete Reteaching Activity 2 in theTCR (Spanish Reteaching Activitiesare also available).

C H A P T E R 2

ECONOMICS & YOU

Economic Systems & theAmerican Economy



Free Enterprise Ask students to act as entrepreneurs for a week and think of andrecord new goods or services to produce. Suggest that they list their new products in cate-gories, such as Education, Sports, and Entertainment. In addition, have students note whythey think their new ideas will be popular with consumers.

Economics Journal

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CHAPTER 2Assessment and Activities


Identifying Key TermsUse terms from the following list to complete thesentences below.

■ traditional ■ private propertyeconomy ■ profit

■ command ■ invisible handeconomy ■ competition

■ mixed economy ■ economic growth■ entrepreneur ■ economic equity■ capitalism ■ standard of living■ free enterprise

system

1. Other terms for the market economic sys-tem are _____ and _____ .

2. Many Americans believe that their eco-nomic system accounts for the high _____in the United States.

3. The concept of _____ allows people to buyand own land, a home, or their ownbusiness.

4. The _____ can make profits or incur greatlosses.

5. A person may keep the _____ they earnfrom selling.

6. Most people live in countries that have a_____ .

7. Adam Smith said the economy isdirected by an _____ .

8. Our government promotes _____ , or fairand just economic policies.

9. The existence of _____ keeps prices lowfor consumers.

Recalling Facts and IdeasSection 1

1. What basic economic question helpsdetermine the career path of individuals?

2. What economic question is beinganswered if an industry replaces someworkers with machines?

3. How does a traditional economy answerthe basic question, “How should it beproduced?”

4. Who answers the three basic economicquestions in a command system?

5. Who owns the factors of production in amarket economy?

Section 26. What are six important characteristics of

free enterprise?7. What is government’s limited role in

pure capitalism?8. Why is private property important in the

American economic system?

Section 39. What are three goals of the free enter-

prise system?10. What does the United States do to pro-

mote economic security for individuals?

2

Self-Check Quiz Visit the Economics Today and Tomorrow Web site at tx.ett.glencoe.comand click on Chapter 2—Self-Check Quizzes toprepare for the Chapter Test.

52 CHAPTER 2

52

Identifying KeyTerms1. capitalism, free enterprise

system2. standard of living3. private property4. entrepreneur5. profit6. mixed economy7. invisible hand8. economic equity9. competition

Recalling Facts and Ideas1. For Whom to produce?2. How should goods and services

be produced?3. according to tradition, or how

things were done in the past4. government leaders5. individuals6. limited government involvement,

freedom of enterprise, freedomof choice, private property, profitincentive, competition

7. to provide for national defenseand to eliminate business prac-tices that limit trade

8. private property rights protectownership, use, and profits

9. Any three of the following: economic freedom, economic efficiency, economicequity, economic security, economic stability, economic growth

10. provides a number of government socialprograms, such as workers’ compensa-tion, unemployment compensation, SocialSecurity, Medicare, and federal insurancefor failed banks

Thinking Critically1. Advantages for buyers—wide choice of

products, low prices. Advantage for sell-ers—encourages efficient use of resources.Disadvantage for buyers—must competeamong other buyers to find the best prod-ucts at the lowest prices. Disadvantage forsellers—businesses must lower prices

2. (a) economic equity; (b) economic free-dom; (c) economic security

Have students visit theEconomics Today and TomorrowWeb site at ett.glencoe.com toreview Chapter 2 and take the Self-Check Quiz.

MindJogger Videoquiz

Use MindJogger to reviewChapter 2 content.

tx.ett.glencoe.com

http://www.glencoe.com/qe/qe59.php?qi=1544&ch=2

http://www.glencoe.com/qe/qe59.php?qi=1544&ch=2



53


Thinking Critically1. Making Comparisons Create a diagram like

the one below to list the advantages anddisadvantages of competition to buyersand sellers.

2. Categorizing Information Explain what U.S.economic goal is being met by the followingactions: (a) The government regulates theamount that an electric company can chargeyou for energy. (b) Juan moves to Seattle towork for a Web page designer. (c) Your sav-ings account is insured up to $100,000.

ApplyingEconomic ConceptsEconomic Systems An economic system withinyour school determines the answer to the basicquestion, “For whom should it be produced?”Make a list of the goods and services availableto students within the school. After each item,write whether the distribution of this good orservice is determined according to the princi-ples of a market, command, or traditionaleconomy.

Reviewing SkillsMaking Comparisons Research Russia’s econ-omy today and when it was a command econ-omy under the Soviet Union. Prepare a chartlisting the similarities and differences in howthe three basic economic questions were andare answered under both economies.

CooperativeLearning Project

In small groups, submit plans for a nationaleducation system in a command economy.Provide answers to such questions as: Whatlevel of education should be available with-out cost to everyone? Should academicachievement or testing qualify students forhigher levels of education?

TechnologyActivityUsing a Spreadsheet Create a spreadsheet likethe one below highlighting your weeklyspending habits.

1. In cell F2, use a formula such as�SUM(B2:E2) to calculate total expendi-tures on Monday. Click and drag this for-mula to cells F3 through F8 to find theother weekday sums.

2. Using the above summation method, com-pute total expenditures for cells B9–F9.

3. Print your results.

Review world economic news from maga-zines or Web sites. List the economic deci-sions of several nations and make a table thatclassifies the decisions as supporting freemarket or command systems.

Competition

Buyers

Sellers

Buyers

Sellers

Advantages

Disadvantages

CooperativeLearning Project

Allot time for each committee toexplain its plan. Make sure presen-tations answer both questions.Discuss any issues that surface dur-ing student presentations.

Technology ActivitySpreadsheets will vary. Ensure

that students follow the listed stepsin completing their spreadsheets.

Analyzing theGlobal Economy

Tables will vary. Encourage stu-dents to share and discuss theirtables with the class.

ASK: In Japan, private industrydetermines production goals inconjunction with governmenteconomic forecasting. Whattype of economic system doesthis interaction suggest? mixedeconomic system

Chapter BonusTest Question

Applying EconomicConcepts

Make sure that students list at least fivegoods or services and that they demonstrateunderstanding of the different economic systems.

Reviewing SkillsDirect students to the Skills lesson on page

39 before they undertake this task.

ECON: 10A-B

Page 52: 3A, 4A-B, 10A-B, 15A-B,16A, 19A, 20A, 23A, 24A

Page 53: 4A-B, 10A-B, 11B, 15A,16A, 23A, 23D, 23F-G,24A, 24D, 25B


Teacher’s Notes

Economics LabEconomics Lab

Testing Consumer ProductsFrom the classroom of Mitzie B. Tabor, West Carter High School, Olive Hill, Kentucky

In Chapter 2 you learned that the freeenterprise system allows individuals to

take risks and go into business for them-selves. In this lab, you’ll become a businessowner and select a product to make. Aftershopping for the resources needed to makethat product, you’ll perform tests on theitems to see if they are quality, yet cost-effective, goods.

✔ copies of Consumer Reports magazine

✔ supplies pertaining to your product (seeprocedure #3 in the next column)

✔ pencil

✔ writing paper

✔ graph paper and poster board

1. Organize into groups of three.

2. Decide upon a small business operationto run. Choose one of the product ideasthat follow, or develop your own product.

■ Sell “cookie-wiches” consisting oficing between two sugar cookies.

■ Sell hot chocolate withmarshmallows.

■ Sell portraits sketched with markerson drawing paper.

■ Sell orange juice-banana fruit“smoothies.”

3. Gather three samples of the items(resources) you’ll need to make your prod-ucts. For example:

■ To make the sandwich cookies, youneed three different types of sugarcookies and icing.

■ For the hot chocolate, you needthree different samples of cocoa andmarshmallows.

■ For the portraits, gather three differ-ent types of markers and drawingpaper.

■ To make the smoothies, gather threedifferent brand names of orangejuice and bananas.

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Point out that business owners,as well as economists, use eco-nomic models. Tell students that inthis Economics Lab they will act asbusiness owners. First they will testmaterials they intend to use fortheir businesses. Then they willconstruct economic models to com-pare the quality and cost-effective-ness of those materials.

Economics LabEconomics Lab

A wide variety of materials needsto be gathered before studentsbegin this lab. Further, setting upand conducting testing sessionsmay be time-consuming. If itappears that the lab may stretch outover an extended period, you maywish to make a regular check of stu-dents’ progress.

In Step B, ensure that there is atleast one group for each product.Offer groups advice and guidancewhen needed.

ECON: 4A-B, 23B

Answers to Lab Report AnalysisAnswers will vary. In a review session of this Economics Lab, have students compare anddiscuss their responses.

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4. Now you’ll devise a product-comparisontest to use on the three versions of eachitem. Scan copies of Consumer Reportstests to get an idea of what categories touse in your tests—cost per unit, durabil-ity, flavor, aftertaste, ease of use, reliabil-ity, overall score, and so on.

5. Within your group, perform the product-comparison tests. You may want toinclude the rest of the class in a blindtest to get a larger response.

Use the results of your tests to draw agraph (bar, circle, or line) visually showingwhich item came out ahead of the others.Draw your graph(s) on poster board to usein a presentation to the rest of the class.

Study the graph that you created in stepC, then answer the questions below.1. How wide was the price differenceamong competing brands of resources?2. What other factors influenced yourchoice of items to use in your product?3. Were you surprised by the results ofyour tests? Explain.

Have students answer the LabReport Analysis questions inStep D.

Have students discuss how theexercise conducted in the EconomicsLab might help business efficiencyand profit-making potential.

After businesses have decidedon the materials to use in theirproducts, they then test consumerresponses to those products.Business representatives randomlyselect people for focus groups.These groups then take part inblind tastings or surveys. Finally,the business representatives col-late results to evaluate consumerresponse.

ECON: 4A-B, 23A, 23D

Page 54: 4A-B, 19D, 23A-CPage 55: 4A-B, 23A-B, 23F-G,

24C-D, 25B


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