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Unit 2: Economic Systems Lesson 2.1: Three Economic Questions and the Traditional Economy

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Unit 2: Economic Systems Lesson 2.1: Three Economic Questions and the Traditional Economy Unit 2: Economic Systems Lesson 2.1: Three Economic Questions and the Traditional Economy What you will learn! An economic system is the way societies provide goods and services to meet the wants and needs of its citizens. SS.912.E.1.3. There are three economic questions that every economic system must answer: (1) what are we going to make?; (2) how are we going to make it?; (3) for whom are we going to make it? SS.912.E.1.3. A traditional economy is an economic system based on customs, habit and ritual passed down from generation to generation. SS.912.E.1.3. Key Point #1. An economic system is the way societies provide goods and services to meet the wants and needs of its citizens. In the last unit, we learned that economics is about why we make choices about what we want and need. Scarcity—limited amount of resources to meet an unlimited about of needs and wants—forces us to make decisions about everything. In this unit, we will learn about how we get those needs and wants met. Let’s say you have your own little kingdom and it’s your task to design an economy to distribute goods and services. How would you want this economy to look? We could make it a smaller economy, based on small communities or families, where everyone could potentially have a say. Everything—resources and products—could be in the hands of the government, which would make the decisions for everyone. Perhaps you would prefer less control, where everything’s in the hands of individuals and businesses, and they make the decisions about what goods and services will be available. There could be some middle ground, perhaps where individuals and businesses control resources, but there’s some government intervention where needed. These ideas can form the basis for an economic system. An economic system is a way for a society to provide goods and services to meet the wants and needs of its citizens. It’s the way that countries decide how to get goods and services out to the people. In this unit, we will study four economic systems. The first one is a traditional economy, where decisions are made on the basis of habit, custom, and ritual, and are done on a localized level. Second, there is the command economy, where everything is decided by the government. Next, we will look at a market economy. In market economies, decisions are made by individuals and businesses. Finally, the mixed economy provides a combination of private decision-making with some government intervention. Each economic system has its advantages and disadvantages, but the goal is the same: putting goods and services into the hands of the people. But which goods and services? And where are they coming from? This leads us to the three economic questions that every economic system must answer. 1 Unit 2: Economic Systems Lesson 2.1: Three Economic Questions and the Traditional Economy Key Point #2. Every economic system must answer these questions to meet everyone’s needs and wants: What are we going to make? How are we going to make it? For whom are we making it? What are we going to make? With the PPC, we learned that scarcity forces economies to make decisions about what to make. This is because every country has a certain amount of limited resources. The amount of resources determines not only what we can make, but the amount we can make as well. For example, the United States has an enormous amount of natural and manmade resources and we can produce a large variety of products from those resources. However, the tiny Pacific country of Nauru really only has one resource—phosphate—which limits the type of products that they can make. Similarly, the U.S. has a population of more than 300 million people, while Nauru only has 9,322 as of 2010. That’s smaller than the size of Orange City. The amount of people also affects what economies can make because people are the source of labor. In short, economies will make decisions about what to make based on the resources available. How are we going to make it? This question looks at how economies combine what resources they have to make goods and services. For example, let’s say an economy is focused on making cars. Should we have people make those cars, or should we use computers and robotics to make them? What about the environment? Should we try to create cars with a process that pollutes less, or should we try to make as many as possible and not worry about it? Economies must look at how to produce the products it has chosen to make. For whom are we going to make it? What this question is asking is who are these products for? And how do we decide that? Remember, we have a limited amount of resources to make these products. That also means that we have a limited amount of products. So who gets what? And how much? Should the economy distribute goods and services according to need, or perhaps equally, or should it give them out according to how much you are willing to pay? Key Point #3. A traditional economy is an economic system based on customs and traditions passed down from generation to generation. Now that we have a working definition of what an economic system is, and what decisions they have to make to meet the needs and wants of its citizens, it’s time to take a look at the first economic system: traditional economy. A traditional economy is an economic system based on customs and traditions passed down from generation to generation. Typically, these types of economies are fairly small and close-knit, and are often centered around agriculture and hunting. At the same time, decisions are made on a collective basis, meaning that the local community makes decisions together for the whole society, rather than on an individual or family basis. The biggest advantage of a traditional economy is stability. What has been done in the past, will be done now and in the future. People will participate in the economy according to their own gender—sons will follow fathers, daughters will follow mothers. 2 Unit 2: Economic Systems Lesson 2.1: Three Economic Questions and the Traditional Economy Unfortunately, this stability also lends itself to several disadvantages. The focus of these economies is on subsistence and survival. That means the focus is on needs: food, water, shelter. Innovation is not typically found in traditional economies. In other words, the iPhone is more likely to be produced in a complex economy like the United States, than a traditional one like the Amish. Speaking of the Amish, traditional economies face enormous outside pressures in today’s increasingly globalized economies. When we think about the Amish, we think of quiet and quaint Pennsylvanians driving horse and buggies. What we don’t typically think about is the city of Philadelphia and its 1.5 million residents about 1 ½ hours away, with its flashy cars, its newfangled iPods, and its rock and roll. How are you going to keep them on the farm when they’ve seen Philadelphia? “Customs and traditions” sounds a little outdated, doesn’t it? In most books, tribes, clans, and extended families are often cited as the example to remember. It’s fine to think of a Native American tribe in the 1800s or of something more quaint like the Amish. Those examples are limited and locked in time, however, which somehow makes the traditional economy old and antiquated. However, you should recognize that the traditional economy is alive and well, and represented easily in Central Florida and Volusia County. One of our biggest attractions here in Volusia is the Daytona International Speedway. NASCAR dominates the local Daytona Beach economy and has had a history here in some form well over a century when the first racetracks were the sandy beaches of Daytona and New Smyrna. When you think of NASCAR, even if you aren’t a fan of 200 mph cars, you probably have heard some of the names that have won the checkered flag: Dale Earnhardt, Sr., Richard Petty, Ned Jarrett. Of course, you’re more likely to have heard of their sons, closer to you in age: Dale Earnhardt, Jr., Kyle Petty, Dale Jarrett. Racing, as an industry, has been a family affair. It’s no coincidence that some of the drivers on the NASCAR circuit are related to each other. When your Dad’s driving a car whose rumble can be felt through a stadium, wouldn’t you be attracted to that too? Even outside of driving, NASCAR mechanics often pass their trade down from father to son. Another good modern example of the traditional economy is Pigeon Forge, Tennessee. You may not have heard of the place. In the 1800s, it was a quiet mountain town, a dot on the map as you drive out of the Smoky Mountains on your way 3 Unit 2: Economic Systems Lesson 2.1: Three Economic Questions and the Traditional Economy to Knoxville. It remained that way until about the 1970s when a small theme park was built in an attempt to bring tourists in. However, it didn’t see any real success until 1985, when the town’s most famous resident bought it up and transformed it into what we now know as Dollywood. Dolly Parton’s influence in creating this multi-attraction theme park has brought the small town of 5,000 a way of life.
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