22 Unit 1 The Economic System
Yor
ou live in an economic world. Money changes hands every time you
buy a snack, rent a movie, ride a bus, turn on a light, text a message,
see a doctor. Economic wheels turn to keep schools open, main-
tain streets and parks, and provide police and fi re protection. Your home
receives electricity, your television receives broadcasts, and your favorite
stores are stocked with items you want to buy. Every day, you use and
depend on items generated by the U.S. economy.
Did you ever wonder how all these events happen? You will learn in
this chapter about the powerful forces that link you to the nation’s goods
and services. You will also learn how these forces work and the important
role you play.
Economic Systems
In earliest times, families were relatively self-suffi cient. The family
was the basic economic unit. It provided members with food, shelter, pro-
tection, hides for wearing and staying warm, and other needs. Needs are
items a person must have to survive. Needs differ from wants, which are
items a person would like to have but that are not essential to life.
As families formed communities and moved away from an agricul-
tural base, life became more complex. No longer were families so self-suf-
fi cient. They became consumers who looked beyond the family to meet
many of their needs. They began to trade with one another. Artisans and
tradesmen became expert in their work.
As individuals and communities provided specialized labor, a wider
variety of goods and services fl ourished. Goods are physical items such
as food and clothing, while services refer to work performed. Examples
of services include work done by a carpenter, plumber, or accountant. The
interdependence of providers and users of goods and services marked the
beginning of an economic system. An economic system is the structure in
which resources are turned into goods and services to address unlimited
needs and wants.
Types of Economic Systems
Every nation has an economic system. Economists have defi ned four
basic types—traditional, market, command, and mixed economies.
Traditional
The traditional economy is a system in which economic decisions
are based on a society’s values, culture, and customs. Today this type of
economy exists mostly in underdeveloped countries or nations governed
by strong cultural, religious, or tribal leadership.
In these areas, change comes slowly. People tend to stick with what
they know and do as they have always done. For example, if you lived in
a traditional economy and your parents raised sheep, chances are that you
would too. You would likely grow your own food and make your own
Economists
Economists study how
society distributes
resources, such as land,
labor, raw materials, and
machinery, to produce
goods and services. They
may conduct research,
collect and analyze data,
monitor economic trends,
or develop forecasts.