Economic systems handout

Key terms:
Economic systems - an economic system, or economic order, is a system of
production, resource allocation and distribution of goods and services. These are free
market economic systems, planned / command economies and mixed economic
systems.

Free market economic systems - a market in which resource allocation (or price
and/or output) is determined by demand and supply or a price mechanism or producers
and consumers or where the means of production are privately held by individuals and
firms, or where demand and supply determine how much to produce, how to produce,
and for whom to produce.

Centrally planned economic system - an economic system where resources are

allocated by the government or a central planning authority.

Mixed economy - a combination of both planned and free market systems and includes
both a private and public sector.

Public sector - the (government sector) which controls basic services e.g. schools,
hospitals, roads as well as some key industries.

Private sector - the sector of the economy providing services, free from government
control although dangerous goods are illegal e.g. drugs, weapons e.t.c.

© Mark Johnson,
InThinking www.thinkib.net/Economics 1
Activities

1. Complete the following table outlining the advantages and disadvantages of each economic
system.

Economic Advantages of this system Disadvantages of this system

system
Free market There are significant external costs
system

Mixed
economic
system

Planned
economic
system

© Mark Johnson,
InThinking www.thinkib.net/Economics 2
Activity 2

(a) Are there any nations in the world which can be described as 100% free market

(b) Are there any nations in the world which can be described as 100% planned

(c) Which system do you believe offers the best life for its citizens?

Activity 3

The table to the right illustrates a range of nations with the size of the government or public
sector as a percentage of GDP, indicating the level of government involvement in each
nation.

(a) Explain why different nations

have very different levels of
government expenditure as a %
of GDP.

(b) Why are disabled toilets are

not provided in free market
systems.

© Mark Johnson,
InThinking www.thinkib.net/Economics 3
Activity 4 - free market capitalism

Watch the following video which outlines the views of Adam Smith, a man that many regard
as the father of economics. Then discuss the legitimacy of Adam Smith's claim, that the
super rich can be persuaded to voluntary fund social projects out of self vanity. A list of the
world's greatest philanthropists, by donations to charity in USD.

Name of
Amount given Project
philanthropist
Healthcare, extreme poverty, education,
Bill Gates $ 65 billion
access to information technology
Healthcare, education, AIDS-prevention,
Warren Buffett $ 30.8 billion
sanitation
Li Ka-shing $ 10.7 billion Education, healthcare
Andrew Carnegie $ 9.5 billion Libraries, education, peace
Azim Premji $ 8 billion Education, healthcare
Healthcare, youth, ageing, poverty, human
Chuck Feeney $ 6.8 billion
rights
Healthcare, anti-fascist publications,
George Soros $ 6.1 billion
human rights
Prince Al-Waleed bin
$ 3.5 billion Empowering women and disaster relief
Talal
Education, healthcare, intercollegiate
Phil Knight $ 2 billion
athletics
James E Stowers $ 2 billion Healthcare
Howard Hughes $ 1.56 billion Healthcare

© Mark Johnson,
InThinking www.thinkib.net/Economics 4
Activity 5 - what happened when a capitalist, socialist and a communist went for
dinner?

Watch the following short video and then answer the questions which follow:

1. Why was the communist forced to eat chicken and rice?

2. Why did the socialist presume that it was OK to share the dinner of the wealthy
capitalist?
3. To what extent is the dinner scene a true reflection of the difference between the three
economic systems?

Activity 6

Watch the short video from Professor Aeon Skoble, a supporter of free markets who presents
a convincing argument in support of free economics principles. Based on the video answer
the questions that follow.

Areas for discussion

The central argument of Professor Aeon Skobleis is that left unregulated businesses will
willingly choose to act responsibly because it is in their common interests to do so.

Evaluate the relevance of this argument in terms of the following scenarios:

a. Whether or not governments should impose pollution limits on businesses?

b. Whether or not governments should regulate the practises of private investment banks?

c. Private provision of public services such as schools, health services and social housing?

d. Private sector development of renewable energy

© Mark Johnson,
InThinking www.thinkib.net/Economics 5
Activity 7 - the sharing economy

This lesson is an extension activity on the market place and examines a relatively new market
which has grown out of the popularity of smart phones in many economies. Start by
watching the following video and then use what you learn in the video to complete the
activity which follows.

The video describes four smart phone applications which allows suppliers and consumers to
meet - Feastly, Uber and Airbnb

In small groups have your students prepare a short presentation on one of these services and
decide whether the service provides a cost or benefit to the society where they
operate. Responses must consider a range of customers including:

 customers
 suppliers
 the government
 traditional suppliers of the services such as taxi drivers and take away food outlets.

8. Reflection activity

To what extent does the sharing economy pose a threat to established businesses and decide
whether or not governments should regulate the sharing economy or not?

© Mark Johnson,
InThinking www.thinkib.net/Economics 6