VCEE Scope & Sequence EPF Unit 2 : simplebooklet.com

UNIT 2 - ECONOMIC SYSTEMS (6 Days)All teaching resources in this document are free for teachers. Here is how to you access them:1. Many are hyperlinked in the document, so you can get started right away. 2. Lessons that do not have a hyperlink can be found on the lesson plan resource calledVirtual Economics 4.5 or 5.0 (VE). All teachers can and should get this resource for freeby participating in a VCEE training session. Visit www.vcee.org for more information.3. Lessons from Financial Fitness for Life are on VE. They also have educationaltechnology tools that can be found here:https://www.econedlink.org/resources/collection/fffl-9-12/The problem of scarcity forces every society to make difficult choices about how to use itsresources. In trying to decide how to allocate those scarce resources, each society must answerthree critical questions. How those questions are answered determines the type of economicsystem (market, command, traditional, mixed) that is present.EPF.1 The student will demonstrate knowledge of basic economic concepts and structuresbye) comparing the characteristics of market, command, traditional, and mixed economies(BUS6120.038)Day 1 The three basic questionsDay 2 Command, traditional, and market economiesDay 3 The free market and the US economyEPF.1 The student will demonstrate knowledge of basic economic concepts and structuresbyf) identifying Adam Smith and describing the characteristics of a market economy(BUS6120.039)Day 1 Competition and the invisible handDay 2 Property rightsEvaluation Day1Virginia Council on Economic Education

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EPF.1 The student will demonstrate knowledge of basic economic concepts and structuresbye) comparing the characteristics of market, command, traditional, and mixed economiesDay 1 - The three basic questionsContent KnowledgeMost high school students already understand the major advantages and disadvantages of sellingconcert tickets using a first-come/first-served system, rather than a lottery to select from amongthose who applied for tickets. Unfortunately, many students have experienced the use of force toallocate resources on the school playground. Students also know that families typically useauthoritarian systems to decide how resources are used — Mom and Dad decide.2Individuals and organizations routinely use different decision-making systems to determinewhat should be produced, how it should be produced, and who will consume it.2When examining systems, the teacher should note the characteristics of each economic system.However, the most distinguishing characteristic is “who makes decisions?” The greater theamount of decision-making that is left to the individual producer and consumer, the closer asystem is to a market system. The greater the amount of decision-making that is left to acentralized authority, the closer the system is to a command system.Another factor that may be considered is “who bears the risk?” The more the individualconsumer or producer bears the risk of their decisions and is left to deal with the consequences,the closer the system is to a market system. The more risk is shared and socialized, the closer thesystem is to a command system. Further discussion of these ideas can be carried out on days twoand three.VocabularyEconomic systems – The institutional framework of formal and informal rules that a societyuses to determine what to produce, how to produce and how to distribute goods and services.Virginia Board of Education FrameworkThe three basic economics questions are1. What goods and services will be produced?2. How will these goods and services be produced?3. Who will consume these goods and services?Teaching Tips2Virginia Council on Economic Education

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1) An allocation activity helps the students recognize that who makes decisions determines thetype of economic system. Have an item that most students in your class would like. Forexample, bring a can of cold soda after recess or make a "get out of homework free" coupon.Ask how many students would like to have the item. Explain that many students want it so adecision will have to be made about whom gets it. Ask the students to suggest ways in whichthis decision can be made. Most suggestions can generally be categorized as lottery, authoritydecides, highest bidder, need, force and first-come, first-served. With these categories, it is thenpossible to discuss who makes the decision and who benefits or loses as a result. Then links canbe made to how allocation decisions are made in the students' society.3Lessons and ResourcesEconomies in Transition: Command to Market Lesson 2: Who Decides?Master Curriculum Guides in Economics: Teaching Strategies - 5-6 Lesson 2: What? How? ForWhom?Capstone Lesson 3: Economic Magic: Creating Something from NothingOnlineEconEdLink I Don’t Want Much, I Just Want Morehttps://www.econedlink.org/resources/i-dont-want-much-i-just-want-more-allocation-competition-and-productivity/Day 2 - Command, traditional, and market economiesContent KnowledgeStudents need to understand that governments can direct economic activity, but they often can’tdo it efficiently. A command economy takes the freedom to choose from the individuals insociety and transfers it to a smaller group. It is impossible for this group to have all of theinformation necessary to efficiently and effectively allocate resources in a way that will satisfythe greatest number of wants.Students also need to recognize that traditional economies are inefficient and lack an incentive togrow and change. Virtually all modern economies, including the economy of the United States,contain some parts of the command, market and traditional economic systems within them.All market economies have several basic characteristics in common including private property,free enterprise, self-interest, competition, a price system and limited (laissez-faire) government.Property rights, defined as individual ownership and control of resources and products, are a3Virginia Council on Economic Education

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fundamental characteristic of a market system. Property rights affect the way markets allocateresources. If property rights are well defined and enforced and markets are competitive, a marketsystem ensures that resources are used in their most valued manner.The American economy uses a market system to make many allocation decisions, and it isimportant for students to understand why the market system is used so extensively. Students alsoshould be able to compare the characteristics of a market system with alternatives used moreextensively in some other countries. With this understanding, students can assess the benefits andcosts of alternative allocation systems when discussing difficult questions such as how incomesshould be divided among people or who should receive a kidney transplant and who should not.2Teachers should use the terms market, mixed and command to describe economic systems ratherthan capitalist, socialist and communist. These terms mean different things to different people,and they carry an emotional and political overtone that can be confusing and/or distracting.VocabularyCommand economy – An economy in which most economic issues of production anddistribution are resolved through central planning and control.Market economy – An economy that relies on a system of interdependent market prices toallocate goods, services, and productive resources and to coordinate the diverse plans ofconsumers and producers, each of them pursuing their own self-interest.Mixed economy – An economic system that exhibits characteristics of more than one type ofeconomic system. Most modern systems are mixed and have various aspects of command,market and traditional systems within them.Traditional economy – An economy in which customs and habits from the past are used toresolve most economic issues of production and distribution.Virginia Board of Education FrameworkIn a market economy, scarce goods and services are allocated through the influence of prices onproduction and consumption decisions.In a traditional economy, the answer to all questions is “What has always been done.”In a command economy the government or other central authority answers all of the questions.A mixed economy is a combination. The United States is primarily a market economy; however,since it has some elements of government involvement (e.g., taxation and regulation) it issometimes called a mixed economy.Most of the world’s economies today are mixed economies and exist on a continuum betweenmarket and command. Some lean toward market; others lean toward command.Teaching Tips4Virginia Council on Economic Education

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1) Explain to students that traditional economies are those where the three basic economicquestions are answered based on habit or tradition. Production is carried out in certain waysbecause “that’s the way we’ve always done it,” or “you don’t mess with success.” Ask students ifthey know of any traditional economies that still exist. Some students might suggest remoteprimitive tribes or cultures that are “cut off” from the outside world.Then ask students if there are certain traditions in their family. Are there certain things that aredone for holidays, for special events, etc.? Do these traditions take the place of making choicesor drive decisions about where to go, what to eat, what to purchase, etc…? Are these examplesof a “traditional” economy?2) You can ask students to name historical nations that they feel had total control of the economy.Common responses may include Hitler’s Germany or the former Soviet Union. You can askabout current nations that they feel have total control over the economy. Common responsesmay include Cuba or North Korea.Ask students what they feel are the common characteristics among these nations. Point out thatin command economies, there is a centralized authority that makes most decisions about thethree major economic questions – what to produce, how to produce and for whom, If you haveused or plan to use the “Moscow on the Hudson” video (see resources section), this is anopportune time. The main character lives in the former Soviet Union and is used to having towait in lines for unknown products. Once he gets to the head of the line, he finds his choices arelimited by a “central authority”. The same character, once in the U.S., is astounded by thechoices just about coffee.Ask students to suggest reasons for centralizing decision-making. Common responses mightinclude “greater efficiency,” “avoid bad decisions,” and “more fairness.” Ask students howsatisfied they are when others make decisions for them. Do they want to make more or fewerdecisions for themselves? Why?A command economic system is sometimes confused with a dictatorship. A command economyoften is run by a dictator such as Stalin or Castro, but democracies can also have large elementsof command in the economy. The key is to remember that command decisions are made bygovernment. These decisions are made by non-elected officials in a dictatorship and by electedofficials in a democracy.33) In a market economy, supply and demand are major factors in how the three basic economicquestions are answered. Have students identify examples of products for which the pricefell because sellers did not sell all they had produced at the initial price; identify examples ofother products for which the price rose because consumers wanted to buy more than producerswere producing at the initial price. Explain what happens (and why) to the price ofconcert tickets purchased from scalpers when, at prevailing prices, many more people want toattend those events than the number of seats available.2Lessons and Resources5Virginia Council on Economic Education

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Capstone: Exemplary Lessons for High School Economics Lesson 6: Why Did CommunismCollapse?OnlineEconEdLink Traditional Economies and the Inuithttps://www.econedlink.org/resources/traditional-economies-and-the-inuit/The Bead Game Simulationhttps://files.eric.ed.gov/fulltext/ED458175.pdfVideoMoscow on the Hudson (DVD) – Chapter 1 (3:30 to 3:55), Chapter 3 (10:35 to 11:05),Chapter 17 (1:01:45 to 1:02:45)“Tradition”, from Fiddler on the Roof (the first 3:50 of the clip are sufficient)http://www.youtube.com/watch?v=gRdfX7ut8gwDay 3 - The free market and the US economyContent KnowledgeIn market economies, there is no central authority that decides how many different kinds ofsandwiches are provided for lunch every day at restaurants and stores, how many loaves of breadare baked, how many toys are produced before the holidays, or what the prices will be forsandwiches, bread, and toys. Students should understand that, instead, most prices in marketeconomies are established by interaction between buyers and sellers. Understanding how marketprices and output levels are determined helps people anticipate market opportunities and makebetter choices.2Consumers wish to purchase goods and services so that they can satisfy their wants. Producerswish to supply goods and services to consumers in order to earn the profits with which producerscan satisfy their own wants. Both sellers and buyers are better off when they willingly makeexchanges in the market. To facilitate exchange, systems have evolved to coordinate the actionsof suppliers and consumers. In the United States and many other countries, exchange and thesetting of terms under which exchanges take place usually occur in markets. Markets areinstitutional arrangements that enable buyers and sellers to exchange particular amounts of goodsor services at particular prices. Prices help buyers and sellers decide how to use their resources.Both buyers and sellers play a role in establishing prices and the quantities that are exchanged atvarious prices.36Virginia Council on Economic Education

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VocabularyMarket economy – An economy that relies on a system of interdependent market prices toallocate goods, services, and productive resources and to coordinate the diverse plans ofconsumers and producers, each of them pursuing their own self-interest.Virginia Board of Education FrameworkEPF.1e: In a market economy:● consumers decide what will be produced by casting their “dollar votes”● producers choose the most profitable method of production● goods and services are consumed by those who are willing and able to pay the marketprice.In a market economy, scarce goods and services are allocated through the influence of prices onproduction and consumption decisions.A mixed economy is a combination. The United States is primarily a market economy; however,since it has some elements of government involvement (e.g., taxation and regulation) it issometimes called a mixed economy.Most of the world’s economies today are mixed economies and exist on a continuum betweenmarket and command. Some lean toward market; others lean toward command.EPF.1f: Market economies are characterized by:● private ownership of resources, which provides incentives for the owners of resources toweigh the value of present uses against the value of conserving the resources for futureuse● competition among businesses, which tends to lower prices and raise quality● prices determined in the marketplace through the interaction of supply and demand● consumer sovereignty, the concept that consumers’ “dollar votes” tell businesses what toproduce● profit motive, an incentive for businesses to produce what consumers demand and toproduce those goods and services efficiently—keeping costs down—in hopes of earninggreater profit● limited government that acts as a referee—protecting consumers, workers, theenvironment, and competition in the marketplace.Teaching Tips1) Ask students whether they think the US is a market, command or traditional economy. Havestudents explain their answers. Point out that the US, as with most nations, is a mixed economy.There are parts of the economy that are very market-oriented, parts that are verycommand-oriented, and parts that are driven by tradition. Ask students to come up withexamples of each type of economy that is present in the US system. For example, most nurses inthe US are females, and most truck drivers are males, due to tradition. Enacting a law thatprohibits smoking in restaurants is an example of a command decision.7Virginia Council on Economic Education

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2) Have students explain the effect a free market has on the following scenarios: Why there isusually a shortage of batteries in areas where forecasters predict a hurricane? Why there is oftena late-season surplus of tickets available for the home contests of a baseball team that loses mostof its games? Explain what will happen to corn prices during an unusually favorable growingseason?Lessons and ResourcesMiddle School World Geography: Focus on Economics Lesson 5: Economic Freedom: HowImportant Is It?Your Credit Counts Challenge Section 6: The Basics of a Market EconomyEconomies in Transition Lesson 1: A Parking Lot Full of IncentivesEconEdLink Guess Who’s Coming to Dinnerhttps://www.econedlink.org/resources/guess-whos-coming-to-dinner/8Virginia Council on Economic Education

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EPF.1 The student will demonstrate knowledge of basic economic concepts and structuresbyf) identifying Adam Smith and describing the characteristics of a market economyDay 1 - Competition and the invisible handContent KnowledgeAdam Smith was the father of modern economics. He based his theory and understanding of themarket on several ideas. First, he believed that rational, enlightened individuals would bestbenefit society by being allowed to pursue their own self-interest. (Self-interest is not the sameas greed.) He came to this conclusion after years of philosophical work that indicated we areconcerned about what others think of us and we are aware of our connection with others.Rational individuals realize that their best interests are tied up with the continued best interests ofothers, in the long-run.In a market economy, there is no direct communication between producers and consumers -market sales and pricing do the “talking” for us. Smith referred to this indirect communicationas an “invisible hand” guiding the market. Price and market transactions answer the questionsof “what, how and for whom,” instead of the “visible” hand of government. However, Smith alsobelieved that government and laws were necessary to keep markets running smoothly. Thesewere necessary to protect property and profits that were legally and fairly obtained.Finally, Smith believed in the value of trade over self-sufficiency. He demonstrated thatindividuals and nations who trade are richer and better off (have a higher standard of living) thanthose who restrict trade by erecting barriers or giving preferences. He felt this was true on alocal, national, and international level.VocabularyAdam Smith – He is the father of modern economics. He wrote An Inquiry in the Nature andCauses of the Wealth of Nations which was published in 1776 and explained the nature ofeconomic exchange and the role of government in the economy.Private property – A basic institution in a market economy, private property involves the rightto exclusive use, legal protection against invaders and the right to transfer property to others.Property rights are defined, enforced and limited through the process of government.Virginia Board of Education FrameworkAdam Smith believed that people, acting in their own self-interest, would work hard and producewhat consumers want as if directed by an invisible hand.Smith argued for trade, saying it opened new markets where surplus goods could be sold andallowed for cheaper goods to be imported.9Virginia Council on Economic Education

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Smith believed that competition among businesses would keep prices in check.Smith believed there was a limited but important role for government to do things such asenforce contracts, grant patents and copyrights, and provide public works such as roads.Smith observed that specialization and division of labor in a pin factory allowed workers toproduce many times more pins than if each worker had been working alone.Teaching TipDisplay the following quote: “It is not from the benevolence of the butcher, the brewer, or thebaker, that we expect our dinner, but from their regard to their own interest. We addressourselves, not to their humanity but to their self-love….—Adam Smith, The Wealth of NationsAdam Smith talked about “self-interest” (self-love) as the motivation for people to producegoods and services. Can someone have too much self-interest? When does self-interest turn togreed? Have students give examples of the difference between the two.Lessons and ResourcesWorld History: Focus on Economics Lesson 8: Adam Smith and the Market Economy.Capstone: Exemplary Lessons for High School Economics Unit 4, Lesson 20: Why HelpingYourself Helps OthersWight, Jonathon. Saving Adam Smith. Prentice Hall, 2002. ISBN:0-13-065904-5.Saving Adam Smith website: https://facultystaff.richmond.edu/~jwight/Adam/Day 2 - Property rightsContent KnowledgeProperty rights refer to the legal ownership of resources. For many students, this definition stopswith tangible goods – things they own that they can touch. Some students might also recognizethe right of ownership that is conveyed on the intangible; for example – the property rights thatbelong to a musician when they create original music. And don’t forget that ownership ofresources extends to your own labor. The right to your own labor is what gives you the right tobe paid for your work.Market systems cannot function well without clearly defined, well enforced property rightsbecause property rights send clear signals on who is rewarded for caring for the resource and10Virginia Council on Economic Education

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who is liable if it is used poorly. Property rights help insure that people bear the costs and reapthe benefits of their decisions. Property rights and contract enforcement encourage investment byassuring investors that they will reap the rewards of deferring consumption and assuming risk ifthese investments perform well. Limiting individual liability and allowing people to pool theirinvestment resources through joint stock corporations also increases investment and futureincome.2VocabularyCopyright – Legal protection for the authors of literature and music, giving them the sole rightto profit from the publication, distribution and other use of their work for a specific period oftime. It also gives them the ability to transfer these rights to other people or entities.Patent – Legal protection for the inventors of ideas, products and processes, giving them the soleright to profit from the production and distribution of their work for a specific period of time. Italso gives them the right to transfer these rights to other people or entities.Property rights – Legal protection for the boundaries and possession of property. Assigning ofproperty rights to individuals, collectives or governments depends on the economic system.Teaching Tips1) Predict what might happen if there were no legal way to settle boundary disputes or if everystate had its own system of weights and measures.22) Reinforce the point that market systems cannot function well without clearly defined, wellenforced property rights because property rights send clear signals on who is rewarded for caringfor the resource and who is liable if it is used poorly. When property rights are unclear or notenforced, the resource will be overused in the marketplace. Examples such as the markets forelephant ivory and caviar demonstrate how a resource can be overused and depleted whenproperty rights are not clear. Other examples like chickens and cattle demonstrate how aresource can be used aggressively but not depleted if property rights are clear.33) Begin by having students give examples of property. Common responses will include land,homes, cars, clothing, and electronics. Ask students if they believe they should have the right tobuy and sell any of these types of property. Ask them if they believe there are or should be limitson what, how much and when certain types of property should be purchased and ask them tojustify their answers. Ask them if they should be free to use other people’s property or to profitfrom other people’s property; or if other people should be free to use their property or profit fromtheir property. Then have students explain why the rights to buy, sell, use and distribute propertyas one sees fit may differ between economic systemsUpon receiving answers, the instructor can develop the discussion further by asking aboutfile-sharing. The instructor can also ask about the incentive to use a lot of resources to pursue anidea (research) and have that protected. This is where the instructor can introduce ideas ofcopyright and patent.11Virginia Council on Economic Education

VCEE Scope & Sequence EPF Unit 2

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