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Essential Questions and Enduring Understanding
What is an economic system”
An economic system includes the ways people answer three basic questions of economics: What to produce? How
much to produce? Who gets the products? Various forces, such as, market prices and the law of supply and demand or
government regulation, determine how goods and services are distributed. Today, a nation’s economy can be classified
as traditional (subsistence agriculture/cottage industry), communist, socialist or free enterprise.
TEKS/SEs
6.6 Geography. The student understands that geographical patterns result from physical environmental
processes. The student is expected to:
(A) describe and explain the effects of physical environmental processes such as erosion, ocean currents, and
earthquakes on Earth's surface.
(B) identify the location of renewable and nonrenewable natural resources such as fresh water, fossil fuels, fertile soils,
and timber.
(C) analyze the effects of the interaction of physical processes and the environment on humans.
6.9 Economics. The student understands the various ways in which people organize economic systems. The
student is expected to:
(B) compare and contrast free enterprise, socialist, and communist economies in various contemporary societies,
including the benefits of the U.S. free enterprise system.
(C) understand the importance of morality and ethics in maintaining a functional free enterprise system.
(D) examine the record of collective, non-free market economic systems in contemporary world societies.
6.10 Economics. The student understands categories of economic activities and the data used to measure a
society's economic level. The student is expected to:
(B) describe levels of economic development of various societies using indicators such as life expectancy, gross
domestic product (GDP), GDP per capita, and literacy.
6.17 Culture. The student understands relationships that exist among world cultures. The student is expected to:
(A) identify and describe how culture traits such as trade, travel, and war spread.
(B) identify and describe factors that influence cultural change such as improved communication, transportation, and
economic development.
(C) evaluate the impact of improved communication technology among cultures.
(D) identify and define the impact of cultural diffusion on individuals and world societies.
(E) identify examples of positive and negative effects of cultural diffusion.
Instructional Activities
Hook: Use the “Price of Beef” activity on page 3. Let the students read a statement regarding the cattle industry and
determine if the event would result in raising the price of beef, lowering the price or keeping the price stable.
Activity 1: Vocabulary Acquisition
Use the “Survival Words” strategy to allow students to examine key vocabulary regarding economic issues.
Free enterprise, traditional economy, communist economy, socialist economy, subsistence farming, cottage industry,
commercial industry, consumer goods, government restrictions, law of supply and demand
Activity 2: Guided Practice
A. Guide the students to use the ratiocination strategy to identify how the basic economic questions are answered in a
traditional economy and a free enterprise economy. Let the students complete the graphic organizers after they
highlight parts of the text, page 5.
B. To deepen students’ understanding of the free enterprise market economy, use the graph and text to explain how
market price influences the law of supply and demand. Have the students write a definition of “fair market price” and
explain how price affects what is produced, page 6.
Activity 3: Independent Practice
Have the students read the information regarding the “Socialist” economic system, page 7. Ask students to explain how
China is allowing some aspects of free enterprise although it remains a strict socialist state. Students use the text to
emphasize the main industries that the government controls in China. Students will examine the characteristics of a
strict “Communist” economic system by reviewing information about North Korea. Have the students complete the
graphic organizer and answer the questions after reading and analyzing the passages.
Activity 4: Guided Practice
Use the “think aloud” strategy to analyze the political cartoon on page 8. Assist the students in answering the questions
and designing their own political cartoon from the point of view of a government official in North Korea.
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Activity 5: Independent Practice
Let the students discuss and analyze the political cartoons on page 9. After discussing, students answer the questions
and complete the task suggested below the cartoon.
Activity 6: Guided Practice
A. Have the students read and highlight the text on the Human Development Index and levels of development, page 10,
based on that index. Ask the students to describe the key characteristics of “less developed,” “newly industrialized” and
“more developed” after they read the passage.
B. Ask students to examine the data on the chart containing economic indicators for Canada, Papua New Guinea, China,
United States, North Korea, South Korea, and Mexico. Review with students the information that is included in each
indicator. Emphasize how the “labor force” indicator gives information on economic activities that characterize different
levels of development. Ask the students to categorize the levels of development of the countries included on the chart
and explain their decisions by citing specific data. Organizers are provided on page 11.
C. Activity 7: Independent Practice
D. Have the students use the information from their data analysis and the readings in this lesson and determine where
each country’s economy fits in the spectrum between communist and free enterprise economic systems, page 12.
Students decide which economic system to place Canada, Papua New Guinea, China, United States, North Korea,
South Korea, and Mexico on the economic system charts included. On each economic system chart, students describe
the general levels for each of the economic indicators as “low,” “medium (average),” or “high” that match the economic
system.
Activity 8: Debriefing
Ask the students to design a criteria chart that they will use in order to determine the type of economic system and level
of development of a country. Require that students identify the information regarding government action that is
essential to investigate in order to place a country’s economic system along a spectrum from communist to free
enterprise.
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The Price of Beef
For each of the statements below,
decide if the event will result in the
increase of the price of beef, the
decrease in the price of beef or
maintain the current market price in the
United States.
1. Because of drought, farmers are
charging more for corn and hay.
Price Up Price Down
$
$
2. Ranchers try to sell large numbers
of cattle because grazing conditions
are poor.
3. Ranchers reduced the size of their herds but received news that European countries have made
a decision to import more beef.
4. Ranchers decide to sell the same percentage of their herds this year as last year.
5. A famous media personality publicly states that red meat is unhealthy and people should not eat
beef.
6. Large scale ranchers in two foreign nations receive contracts to export beef to national food
chains in the U.S.
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Activity 1
“Survival Words”
Directions:
1. Read the list of words below.
2. Rate how well you know each word by placing an “X” under the appropriate letter.
3. Write the meaning of the word if you know it.
4. At the end of the class, you will revisit your list and fill in the meanings of the new words you learned.
RATING SYSTEM:
A. I know the meaning, and I use the word.
B. I know the meaning, but I don’t use the word.
C. I’ve seen the word before, but I don’t really know
it. D. I’ve never seen the word before.
C
B
A
I know the
meaning, and I
use the word.
Word
I know the
meaning, but I
don’t use the word.
A
B
C
D
I’ve seen the word
before, but I don’t
really know it.
D
I’ve never seen
the word
before.
Meaning
Free Enterprise
(Market Economy)
Traditional Economy
Communist Economy
Socialist Economy
Subsistence Farming
Cottage Industry
Commercial Industry
Consumer Goods
Government Restrictions
Law of Supply and Demand
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Activity 2
Guided
The Forces that Determine the Distribution of Goods and Services in Economic Systems
Directions: Read the passages using the ratiocination strategy of different colors to highlight information. Use yellow to
color information about who determines what to produce. Use green for information regarding who determines how to
produce. Finally, use blue to determine who gets what is produced. Then, answer the questions below.
The economic “problem of scarcity’ explains that resources are limited. A society has to answer the economic questions of: What to
produce? How to find or get it? Who will have it? Some societies are free to find ways to answer those questions for themselves. Other
societies are controlled by governments that answer those questions for the people. Still other societies combine both--people can
answer those questions for some parts of the economy, but the government will regulate other
parts of the economy.
Traditional Economy
The long-standing traditions and customs of the local community determine what
is produced, how to produce it, and who will get it. In the traditional economy of
Papua New Guinea, for example, the local communities are involved in subsistence
agriculture. Most of their time is taken up with growing food that they need for
themselves and their families. However, some communities have cooperated with
each other to grow crops like cocoa, tea, coffee and cocoanuts to sell at markets for
export. Even isolated traditional communities are beginning to have contact with the
global marketplace. In a traditional economy, land and resources are shared in
common and used by the members of the community. Village leaders may be
chosen but they make decisions based upon traditional customs and the traditional
roles that people have within the community.
Free Enterprise Economy
The “Law of Supply and Demand” is one of the most important forces
in determining what is produced, how to produce it and who will get it in
the free enterprise economy. A market economy is influenced by supple
and demand. A free people have freely chosen economic activities-people own property and businesses; people can try to sell products;
people have choices on what to buy because there is competition and
there are selections of products. People risk their money to make
products because they want to sell enough of them to make a profit.
The United States is a free enterprise, market economy. However,
there are some government regulations and government social programs
like Social Security. The United States economy has a large
manufacturing output, generating one fifth of the total global production,
but most of the labor force work is in service industries. Tertiary
economic activities like banking, education, healthcare, retail
occupations, and maintenance services are very strong. Quaternary services like scientific research, academic education,
and information technology are increasing.
Most countries today that have a strong element of free enterprise with some government regulation, like the U.S.,
have most of their labor force in tertiary and quaternary economic activities. Countries with strong free enterprise
economies are more developed. Due to the globalization of economic activity, many U.S. service jobs, requiring telephone
and internet use, have been outsourced, hiring people at another location, to places in Asia. India and the Philippines
have received many jobs outsourced by United States businesses.
(Adapted from World Book)
1. What are the forces that determine the distribution of goods and services in a traditional economy?
Who determines what to produce?
Who determines how it is produced?
Who determines who gets what is
produced?
2. What are the forces that determine the distribution of goods and services in free enterprise?
Who determines what to produce?
Who determines how it is produced?
Who determines who gets what is
produced?
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3. What does the photograph taken in a Papua New Guinea suggest about how traditional economies are influenced by
the global marketplace? ___________________________________________________________________________
4. What might be the connection between the percentage of people in service economic activities and level of
development of a country? _________________________________________________________________________
_______________________________________________________________________________________________
Directions: Since the law of supply and demand is so
essential to grasp in order to explain the free enterprise
system, consider the following reflection on the economic
idea of market price. Read the text and analyze the graphic.
Then guide the students to answer the questions.
Market Prices and Law of Supply and
Demand
The idea of the marketplace represents the
economic arena in which goods and services are
provided and purchased. Price freedom means
that businesses can set prices the way they want.
A good business will determine an accurate market
price. The market price estimates that the demand
for the product and the price people will pay for it
match the supply, how much of the product is
produced. If the market price is accurate, the
demand will match the supply. Profit will be made
and there will be no surplus inventory.
(Adapted from World Book)
The function of price is to encourage production of what is wanted
(creation of a supply), to the extent that what is wanted (the
demand) can be anticipated and a company can carry out
production of the supply.
Answer:
1. What makes a “fair market price?”
2. How does market price affect what is produced?
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Activity 3
Independent Practice
Directions: Read the passages and answer the questions below.
Socialist Economic System
The Socialist Economic System controls and owns segments of a country’s economic activities. Basic industries like
energy (petroleum, electricity, coal), transportation, communication and healthcare are owned by the government.
Decisions about what to produce, how to produce and who will get the products are partially made and controlled by the
government. Some aspects of the economy are regulated by the government but some of the other economic decisions
are made by businesses and individuals. Private property is allowed and private business activities are allowed.
Chinese businesses have bought property in many
countries, including the U.S., and the Chinese
“Wall Street” refers to the stock exchange which influences
government has loaned money to international
business activities that manage investors’ money (capital).
businesses and governments. China moved from a
strict communist economic system to a strong
socialists system with strict government controls and
regulations on most parts of the economy and social
life of the country. The Chinese Socialist System
allows for some privately owned business activities.
However, the government controls oil, weapons
industries, all coal and energy companies,
telecommunications, shipping, and land ownership.
China is an example of a communist economy that is
moving toward free enterprise. However, the
restrictions placed on political freedoms and
individual rights prevent China from being a free
society.
Canada and Australia, like many modern
countries, have some socialist tendencies. The
economy is both planned by the government and the
private sector, using the market system.
Communist Economic System
The Communist System claims that there is no private ownership of property or means of production.
In the Communist System what to produce, how to produce it and who will get it are determined by the central communist
government. Communism is a completely planned economy. Government planners control business and resources,
including workers. The philosophy of communism proposed a society in which everyone cooperated, worked together,
and shared equally in the benefits of the economy. All property and resources were to belong to the nation for the sake of
the people. In practice, the communist economic systems have all been run by dictators.
North Korea is an example of a strict communist economic system. Many times the central authority of the communist
economic system is referred to as the state. Trade is generally limited to what is produced within the areas of influence of
the government, such as the military. While the technology used to produce goods is generally advanced, the goods
produced are based on what the state wants produced. There is little production of consumer goods (TVs, computers,
automobiles) and little personal freedom. The central authority generally owns the factors of production. Wages are often
low and access to jobs is controlled. Personal choice is almost non-existent. The state, however, provides and manages a
wide range of public goods and services, including health care. (Adapted from World Book)
1. What are the forces that determine the distribution of goods and services in a socialist economy?
Who determines what to produce?
Who determines how it is produced?
Who determines who gets what is
produced?
2. What are the forces that determine the distribution of goods and services in communist economy?
Who determines what to produce?
Who determines how it is produced?
Who determines who gets what is
produced?
3. According to the political cartoon, how can China’s economy influence economic activities in the United States?
________________________________________________________________________________________________
________________________________________________________________________________________________
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Activity 4
Guided
Directions: Analyze the two political cartoons that follow. Answer the questions and do the task below each cartoon.
1. What does the visual illustrate about North Korea? __________________________________________________
____________________________________________________________________________________________
____________________________________________________________________________________________
2. What does the visual illustrate about South Korea? __________________________________________________
____________________________________________________________________________________________
____________________________________________________________________________________________
3. What information about the communist economic system in North Korea can you infer from this cartoon?
____________________________________________________________________________________________
____________________________________________________________________________________________
4. Using the space below, draw a political cartoon from the point of view of a government official in North Korea.
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Activity 5
Independent Practice
The Economy
5. What is the story that the cartoonist is portraying in this cartoon? ______________________________________
____________________________________________________________________________________________
6. What economic system is portrayed in this cartoon? What evidence can you use to explain your decision?
____________________________________________________________________________________________
____________________________________________________________________________________________
____________________________________________________________________________________________
7. What economic information can you infer and explain based on this cartoon and your knowledge to describe how prices
in the marketplace determine what goods and services are produced, how they are produced and who gets the goods and
services?
______________________________________________________________________________________________
______________________________________________________________________________________________
______________________________________________________________________________________________
______________________________________________________________________________________________
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Human Development Index and Economic Systems
Activity 6
Guided
Directions: Read the information on the Human Development Index and the indicators of development. Answer the
questions that follow.
The Human Development Index is based upon data on
subsistence agriculture and cottage industries in local
specific countries. The data is analyzed and compared. The villages and homes. Less developed countries have low per
three main dimensions highlighted are health, education
capita income, lower levels of heath care and on average
and living standards.
people die at a younger age. Infrastructure is limited and
The dimension of health is indicated by the category of
there is little access to technology.
“Life Expectancy.” This is the average life span or number
Newly industrialized countries have started new
of years that a country’s population reaches. Another
business activities that allow them to export cash crops and
indicator of health is access to doctors, the number of
goods made in factories. Newly industrialized countries
doctors per, for every, 1000 people. Infant mortality rate
have commercial farming and commercial industries and
measures how many infants die for every 1000 infants
manufacturing, that is, secondary economic activities.
born. Levels of healthcare available to a population can be
Literacy rates, life expectancy and per capita income are
inferred from this data.
higher than countries with traditional economies. Infant
The number of students that attend and graduate high
mortality rate begins to go down and more people have
school, college or graduate school can measure the
access to technology.
dimension of education. However, a general indicator for
More developed countries have mainly tertiary and
education is adult literacy, the percentage of adults that can quaternary economic activities. Most occupations perform
read and write.
services. A higher standard of living is indicated because of
Living standard is most easily measured by income. The higher income levels, high literacy rate, lower infant
indicator of gross domestic product per, for each, capita,
mortality rates, and high access to technology.
individual, is the average yearly income for each individual
Communist economic systems often fit into the newly
in a country. Per capita income emphasizes the average
industrialized category. Life expectancy average to high but
amount of money that people have to pay their bills and
income is low to average. Access to technology is
purchase products.
controlled by the government. Countries that are beginning
There are three categories used by the Human
to manufacture goods and export products into the global
Development Index—Less Developed, Newly
economy usually fit the newly industrialized category.
Industrialized, and More Developed.
Socialist economic systems can range from newly
Countries are categorized as “Less Developed” when
industrialized to more developed. Individuals can have a
many people work in primary economic activities. People
high per capita income but will pay more in taxes to support
spend most of their time producing the food that they need. social programs like education and health care.
(Adapted from World Book)
This is a characteristic of traditional economies that have
Nation
Canada
Papua New
Guinea
China
GDP per
capita
Adult
Infant
Life
Life
Doctors
Literacy
mortality
expectancy
(male)
expectancy
(female)
(per 1000
people)
(per 1000
births)
Internet
users
Electricity
(per 1000
people)
consumption
(kilowatt-hours
per capita)
$39,400
99%
5
79
84
1.91
792
16,147
$2,500
57%
43
64
69
0.05
20
446
$7,600
92%
16
73
77
1.42
291
2,572
United
States
North
Korea
South
Korea
$47,200
Mexico
99%
6
76
81
2.67
782
11,943
$1,800
99%
27
65
73
3.29
NA
771
$30,000
98%
4
76
82
1.97
808
8,245
$13,900
86%
17
74
79
2.89
273
1,596
Labor force
Agriculture: 2%
Industry: 19%
Service: 79%
Agriculture: 85%
Industry: NA
Service: NA
Agriculture: 38.1%
Industry: 27.8%%
Service: 34.1%
Agriculture: .07%
Industry: 20.3%
Service: 79%
Agriculture: 35%
Industry and
service: 65%
Agriculture: 7%
Industry: 23.6%
Service: 69.4%
Agriculture: 13.7%
Industry: 23.4%
Service: 62.9%
(Adapted from Culture Grams and CIA Factbook.)
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1. Use the Human Development Index described above to categorize the levels of development for the
countries. Cite evidence to back up your selection.
Level
Reasons
Canada
Papua New
Guinea
China
United States
North Korea
South Korea
Mexico
2. What characterizes the economic indicators for a more developed nation? Identify as “Low,” “Medium,” or
“High.”
Per capita income: _______________
Literacy rates: ___________________
Life expectancy: _________________
Infant mortality: __________________
Doctors per 1000 people: __________
Technology use: _________________
Labor Force: _____________________
(agricultural/industrial/service)
3. What characterizes the economic indicators for a newly industrialized nation? Identify as “Low,” “Medium,” or
“High.”
Per capita income: _______________
Literacy rates: ___________________
Life expectancy: _________________
Infant mortality: __________________
Doctors per 1000 people: __________
Technology use: _________________
Labor Force: _____________________
(agricultural/industrial/service)
4. Why might Canada use more electricity per capita than the United States and Mexico?
________________________________________________________________________________________________
________________________________________________________________________________________________
________________________________________________________________________________________________
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Activity 7
Independent
Use the information from your data analysis and the readings in this lesson and determine where each
country’s economy fits in the spectrum between communist and free enterprise economic systems.
•
Decide which economic system to place Canada, Papua New Guinea, China, United States, North Korea, South Korea, and
Mexico on the economic system charts below.
•
On each economic system chart, describe the general levels for each of the economic indicators as “low,” “medium (average),”
or “high” that match the economic system.
Economic
System
Who determines
what to produce?
Who determines
how it is produced?
Who gets what
is produced?
What are the characteristics of the economic
indicators? (low / medium / high)
Per capita income: _______________
Literacy rates: ___________________
Life expectancy: _________________
Infant mortality: __________________
Doctors per 1000 people: __________
Technology use: _________________
Labor Force: _____________________
Traditional
Economic
System
Example
Country or
Countries:
(agricultural/industrial/service)
Economic
System
Who determines
what to produce?
Who determines
how it is
produced?
Who gets what
is produced?
What are the characteristics of the economic
indicators? (low / medium / high)
Per capita income: _______________
Literacy rates: __________________
Life expectancy: _________________
Infant mortality: _________________
Doctors per 1000 people: _________
Technology use: ________________
Labor Force: _____________________
Communist
Economic
System
Example
Country or
Countries:
(agricultural/industrial/service)
Economic
System
Who determines
what to
produce?
Who determines
how it is
produced?
Who gets what
is produced?
What are the characteristics of the economic
indicators? (low / medium / high)
Per capita income: _______________
Literacy rates: ___________________
Life expectancy: _________________
Infant mortality: __________________
Doctors per 1000 people: __________
Technology use: _________________
Labor Force : _____________________
Socialist
Economic
System
Example
Country or
Countries:
(agricultural/industrial/service)
Economic
System
Free
Enterprise
Economic
System
Example
Country or
Countries:
Who determines
what to
produce?
Who determines
how it is
produced?
Who gets what
is produced?
What are the characteristics of the economic
indicators? (low / medium / high)
Per capita income: _______________
Literacy rates: ___________________
Life expectancy: _________________
Infant mortality: __________________
Doctors per 1000 people: __________
Technology use: _________________
Labor Force: _____________________
(agricultural/industrial/service)
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