· web vieweconomics studies how people, acting as individuals or in groups, decide to use scarce...

UNDERSTANDING THE ECONOMICS STANDARDSfor teachers in grades 4–5

Economics studies how people, acting as individuals or in groups, decide to use scarce resources to satisfy wants. This fundamental economic concept of scarcity is at the core of the discipline. There are never enough natural resources, human resources, or capital resources (man-made goods such as tools, equipment, machinery, factories) to produce everything society wants. Therefore, choices must be made on what to produce, how to produce, and for whom to produce. Choices must also be made at a personal level. There never seems to be enough money or time to have or to do everything one wants.

Economics is a way of thinking, a science of making choices. Economists examine the decision-making processes of individuals, businesses, markets, governments, and economies as a whole. An understanding of economic principles helps people to:

Consider not only the short-term effects of a decision, but also its long-term effects and possible unintended consequences;

See the connections between personal self-interest and societal goals in order to understand how individual and social choices are made in the context of an economy;

Analyze how social goals, such as freedom, efficiency, and equity, impact public policies.

Because of increasing interdependence and globalization, everyone in the United States needs to be aware of the issues in the global economy, their role in that system, and be able to respond to changes so that they can effectively maintain or raise their standard of living.

Goal Statements for the Economics Standards: Students will learn to examine the relationship between costs and benefits,

and the values associated with them. Students will understand economic principles, whole economies, and the

interactions between different types of economies to comprehend the movement and exchange of information, capital, and products across the globe.

Students will be able to assess the impact of market influences and governmental actions on the economy in which they live.

Students will make personal economic choices and participate responsibly and effectively in social decision making as citizens in an increasingly competitive and interdependent global economy.

Delaware Economics Standards 4–5 1

ECONOMICS ANCHOR STANDARD ONE: Students will analyze the potential costs and benefits of personal economic choices in a market economy [Microeconomics].

Enduring UnderstandingsStudents will understand that:

Due to scarcity, individuals as producers and consumers, families, communities, and societies as a whole must make choices in their activities and consumption of goods and services.

Goods, services, and resources in a market economy are allocated based on the choices of consumers and producers.

Effective decision making requires comparing the additional costs of alternatives relative to the additional benefits received.

How societies survive physically with a limited set of resources is the foundation for the discipline of economics. Because there are not enough resources to satisfy people’s wants, decisions have to be made regarding how resources are going to be used and distributed. By learning to analyze how these decisions are made, students have greater knowledge that will allow them to use their own and society’s resources to achieve the efficient use of resources and the maximizing of benefits relative to costs.

When economists refer to cost/benefit analysis, they mean comparing what one gains and what one gives up when making a choice. The term that describes this process is a tradeoff.1 What is given up is the opportunity cost.2 Gains and losses are not only monetary but also have psychological components based on what individuals and societies value. Every person beginning early in life has to make decisions about how to spend time, income, and energy. If one only has enough time to read or watch TV and chooses to watch TV, then the opportunity cost is reading. When people choose one activity rather than another, the next best thing they could have done with these resources is called the opportunity cost.

On a societal level, productive resources available are land, labor, and capital. Understanding that scarcity requires that choices be made and that for every choice there are costs means that people and society can be more deliberate about what to produce, how to produce, and for whom to produce. An economy requires everyone in a society to engage in activities that involve the pulling together of productive resources, the organizing of work, the generating of income, and the allocating and distributing of goods and services. In the United States’ mixed market economy,3 these questions are answered through the interaction of consumers, producers, and government. Prices send signals and provide incentives that influence the decisions of both consumers and producers.1 Tradeoff means giving up one thing to get something else. 2 Opportunity cost is the second best alternative given up when scarce resources are used to choose one action over another. 3 Mixed market is an economic system which answers the basic economic questions of what, how, and for whom to produce by individual decisions and some government involvement.


Economics Standard One 4-5a: Students will understand that prices in a market economy are determined by the interaction of supply and demand. Economics Standard One 4-5b: Students will understand that consumers and producers in a market economy make economic choices based on supply and demand.

Essential Questions Why might prices change? Who decides? How do I choose what and when to buy or sell? Does price always matter?

The benchmarks in the 4–5 grade cluster are closely linked. Students learn that all decisions in market economies are established by interaction between buyers and sellers. There is no one who decides how many different kinds of sandwiches are provided for lunch every day at restaurants and stores, how many loaves of bread are baked, how many toys are produced before the holidays, or what the prices will be for these goods. Understanding how market prices and output levels are determined and how prices act as signals and incentives helps people anticipate market opportunities and make better choices as consumers (buyers) and producers (suppliers). The forces of supply and demand work best in competitive markets where there are unlimited numbers of sellers and buyers, each with reasonably accurate information, who are competing to sell or buy a relatively similar product such as tomatoes, wheat, and apples.

Supply is defined as the different quantities of a resource, good, or service that producers are willing and able to offer for sale at various prices during a specific time period. Decisions by suppliers of how much to produce reflect the cost of producing the product. As price increases, the amount of products or services producers are willing and able to make also increases. Conversely, as price decreases, the amount producers are willing and able to make decreases. This is called the Law of Supply.

This supply schedule shows that as price per half-gallon of ice cream increases, the amount or quantity producers are willing and able to supply increases. At a price of $7.00, producers are willing and able to supply 80 million half-gallons of ice cream. As the price drops to $1.00, producers are not willing to supply any ice cream. As price decreases, producers are willing and able to supply less, and as price increases, producers are willing and able to supply more.


Supply Schedule for Half-Gallons of Ice CreamQuantity Supplied by

Producers(millions of units)

Price($ per unit)

80 7.0060 6.0040 5.0020 4.0010 3.00

5 2.000 1.00

Demand is defined as the different quantities of a resource, good, or service that consumers are willing and able to purchase at various prices during a specific time period. Generally, as the price decreases, consumers are willing and able to buy more. As price rises, consumers will buy less. This is called the Law of Demand.

This demand schedule shows that, as the price for a half-gallon of ice cream increases, consumers are willing and able to buy less, and as the price for a half-gallon of ice cream decreases, they are willing and able to buy more. At a price of $7.00, consumers are unwilling to buy ice cream. At a price of $1.00, they are willing and able to buy 80 million half-gallons. As price for a good or service increases, consumers are willing and able to buy less of that good or service. As the price drops, they are willing to buy more.

Demand Schedule for Half-Gallons of Ice CreamQuantity Demanded by

Consumers(millions of units)

Price($ per unit)

0 7.005 6.00

10 5.0020 4.0040 3.0060 2.0080 1.00


The demand and supply schedule below shows the market equilibrium price4 for a half-gallon of ice cream is $4.00 per unit. At any price below $4.00 per unit, the amount consumers are willing and able to buy is greater than the amount producers are willing and able to supply. A shortage5 occurs when quantity demanded exceeds the quantity supplied. Competition among buyers will bid the price up to $4.00. At any price above $4.00 per unit, the amount producers are willing and able to supply is greater than the amount consumers are willing and able to buy. When quantity supplied exceeds quantity demanded, there will be a surplus. At a price of $4.00, the amount producers are willing to supply equals the amount consumers are willing to buy. There is neither a shortage nor a surplus. This price is called the market equilibrium price or market clearing price.

Supply and Demand Schedule for a Half-Gallon of Ice CreamQuantity Supplied

by Producers(millions of units)

Price($ per unit)

Quantity Demandedby Consumers

(millions of units)80 7.00 060 6.00 540 5.00 1020 4.00 2010 3.00 40

5 2.00 600 1.00 80

The schedule also shows that 20 million units is the market equilibrium quantity for the market. At a quantity of 20 million units, the price that sellers are willing to accept and the price that buyers are willing to pay are equal. The market equilibrium price of $4.00 and the market equilibrium quantity of 20 million units will persist so long as other factors remain unchanged. If there is a change in supply, or if there is a change in demand, there will be a change in the market equilibrium price and quantity.

4 The market equilibrium price is the price at which the number of goods producers are willing and able to supply equals the number of goods that consumers are willing and able to buy. At this price, consumers and producers are satisfied.5 A shortage occurs when the amount consumers are willing and able to buy is greater than the amount producers are willing and able to supply. Often students think that a shortage and scarcity are synonymous. This is incorrect. Scarcity can never be eliminated. There is never enough for everyone to have everything they want. Some allocation method must be used to determine who gets the scarce goods, services, or resources. Allocation methods include command, majority rule, contests, force, first-come-first-served, sharing equally, lottery, personal characteristics, and others. Another way of allocating scarce goods, services, and resources is price. As price rises, some consumers decide not to buy. Price will rise until the market equilibrium price is reached. A shortage occurs in a market for a specific good when the price is below the market equilibrium price. Shortages can be eliminated by raising the price.


An increase in supply, for example, means sellers are willing and able to sell larger quantities at each and every price. This would result in a lower market equilibrium price and a larger quantity exchanged, assuming demand does not change. This schedule shows an increase in supply.

Supply Schedule for Half-Gallons of Ice Cream—Increase in Supply

Price($ per unit)

Quantity Supplied by Producers

(millions of units)

Quantity Supplied by Producers Increases at

All Prices(millions of units)

7.00 80 1006.00 60 805.00 40 604.00 20 403.00 10 20

A decrease in supply would have the opposite effect because producers are willing and able to supply less at every price. This schedule shows a decrease in supply for half-gallons of ice cream.

Supply Schedule for Half-Gallons of Ice Cream—Decrease in Supply

Price($ per unit)

Quantity Supplied by Producers

(millions of units)

Quantity Supplied by Producers Decreases

at all Prices(millions of units)

7.00 80 606.00 60 405.00 40 204.00 20 103.00 10 52.00 5 01.00 0 0

Changes in supply can be due to a number of factors. For grades 4–5, the factors or determinants that cause a change in supply are changes in the cost of production (natural, human, and capital resources), the change in number of sellers in the market, or natural disasters. Examples appropriate for grades 4 and 5 are:

If worker wages at a skateboard factory increase, the producer of skateboards will supply fewer skateboards at all prices.


Producers of chocolate candy will be willing to produce more candy at every price if the price of cocoa, an input in making chocolate candy, goes down.

When a new manufacturer enters the market and begins to produce skateboards, more skateboards will be available at every price. Supply increases.

A frost kills California oranges. The supply of oranges will decrease. Suppliers are unable to supply as many oranges at any price.

An increase in demand would mean that buyers are willing and able to buy larger quantities at each and every price. This would result in a higher market equilibrium price and larger quantity exchanged. This schedule shows an increase in demand.

Demand Schedule for Half-Gallons of Ice Cream—Increase in Demand

Price($ per unit)

Quantity Demanded by Consumers

(millions of units)

Quantity Demanded by Consumers Increases at All

Prices(millions of units)

7.00 0 56.00 5 105.00 10 204.00 20 403.00 40 602.00 60 801.00 80 100

A decrease in demand would have the opposite effect. Consumers are willing and able to purchase less at every price. This schedule shows a decrease in demand.

Demand Schedule for Half-Gallons of Ice Cream—Decrease in Demand

Price($ per unit)

Quantity Demandedby Consumers

(millions of units)

Quantity Demanded by Consumers Decreases at All

Prices(millions of units)

7.00 0 06.00 5 05.00 10 54.00 20 103.00 40 202.00 60 40


1.00 80 60

Changes in demand can be attributed to a number of factors. For grades 4–5, the factors or determinants that cause a change in demand are changes in consumers’ income, taste and fads, and price of substitute goods. Examples appropriate for grades 4 and 5 are:

In the market for chocolate candy bars, demand will increase if all students receive an increase in their allowance.

Demand for a particular brand of athletic shoes will increase if a well-known athlete advertises the shoes.

Consider the substitute goods chicken and pork. If the price of chicken increases and the price of pork remains the same, the demand for pork will increase. Consumers substitute the less expensive pork for the more expensive chicken.

Tomatoes are thought to make people sick. The demand for tomatoes will decrease.

In a perfect market, one important factor in selecting one good over another is price. This is called price competition.6 However, many non-price competition7 factors such as service and quality of products influence consumers’ decisions. Restaurants that set prices too high or give slow, unfriendly service risk losing customers to competing restaurants that offer lower prices, higher quality products, and better service. In this way, competition benefits consumers. Markets work best when they are fundamentally competitive, when buyers and sellers have access to sufficient reliable information, and when market prices reflect the full costs and benefits related to producing and consuming goods and services.

Here is an assessment item that illustrates the measurement of this benchmark. Students are asked to explain how the owner of the beach umbrella business could get more customers to rent her umbrellas. The item gives a context for the question with a drawing of the owner and the umbrella stand on the beach.

This drawing shows the owner of a beach umbrella business who wants more customers to rent her umbrellas.

6 Producers compete to attract customers to their products. One type of competition is price competition. One business reduces the price of its product. To be competitive, another business selling the same product reduces its price. Another type of price competition occurs when a business offers a cents-off coupon which reduces the price of one product compared with another. Other examples are a buy-one-get-one-free offer and putting items on sale. Both reduce the price of one product compared to that offered by competitors. Fast food restaurants work well when explaining competition. As more pizza restaurants open in a community, prices drop.7 Non-Price Competition – Producers compete to win buyers. Ways to attract customers without changing the price include customer service, quality, design and variety, and advertising. As more pizza restaurants open in a community, consumers benefit with better customer service, better quality pizza, and greater variety of pizzas. Non-price competition usually creates an increase in advertising.


What might this owner do to get more customers to rent her umbrellas? Explain your answer.A student with understanding of the Economics Standard One 4–5 benchmarks would provide a solution for the problem of this owner of the beach umbrella business. The problem for this owner is how to get more customers to rent her beach umbrellas. The response would demonstrate an understanding that consumers and producers make economic choices based on supply, demand, and access to markets. The item is open-ended, which means that there is more than one way to answer this question correctly. A student with deeper understanding of the standard would also include an explanation of how or why this solution would work. The explanation would be accurate and relevant to the solution.


ECONOMICS ANCHOR STANDARD TWO: Students will examine the interaction of individuals, families, communities, businesses, and governments in a market economy [Macroeconomics].


A nation’s overall levels of income, employment, and prices are determined by the interaction of spending and production decisions made by all households, firms, government, and trading partners.

Because of interdependence, decisions made by consumers, producers, and government impact a nation’s standard of living.

Market economies are dependent on the creation and use of money, and a monetary system to facilitate exchange.

Unlike the study of individual markets, the total economy is the sum of all markets in a society. Understanding involves the ability on the part of the students to analyze how changes in one market will impact others. In a market economy, there are three major players in the economy: households, businesses, and government. What the society produces generates income for households. Households sell their productive resources (land, labor, capital, and entrepreneurship) to businesses in exchange for income (rent, wages, interest, and profit). Household income is spent, taxed, or saved. The money spent for private goods and services returns to businesses, while the taxes paid to the government fund public goods and services. Savings is money households do not spend on goods and services. Most households place this income with financial intermediaries such as banks and brokers. These financial institutions transfer the savings through businesses borrowing from banks, the buying and selling of corporate stocks and bonds, the funding of mortgages, and the buying of insurance. Businesses, from small to large, borrow to expand. This requires buying more productive resources from households, which in turn creates more household income. Additionally, goods and services are exported and imported by American households and businesses causing increases in consumption and production within the United States. Economists measure these activities by calculating the gross domestic product and measure a nation’s standard of living by computing gross domestic product per capita.

Economics Standard Two 4-5a: Students will understand the role of banks and other financial institutions in the economy.

Essential Question To what extent are banks necessary for an economy?

The role of banks and other financial institutions in the economy is to transfer funds, directly or indirectly, from savers to borrowers. The money households do not spend is called savings.8 An economist uses saving and investing to describe what households do with money they do not spend on goods and services. Saving and 8 Saving means not spending money now. The money saved is called savings.


investing are essential to long-run economic growth. Economic growth occurs when the economy produces increasing amounts of goods and services. Saving provides resources to businesses to be used as investment in capital goods.9 When loans are made to borrowers, it stimulates the nation’s economy. The purchase of more capital goods increases a nation’s production capacity for goods and services, increases the gross domestic product,10 and can ultimately increase the standard of living.11

Starting or improving a business or purchasing or renovating a home requires large amounts of money (financial capital). Since most people do not have large amounts of savings to finance such ventures, money (financial capital) has to be borrowed from other sources. For example, if a business finds demand for its goods and/or services increases, it might borrow money to purchase capital goods to expand. This expansion might result in hiring more workers. This increases the overall level of income in the community. When home owners get a mortgage for the construction of a new house, more workers must be hired to build the houses. Their incomes are then used to purchase more goods and services. In addition to constructing the house, many homeowners will purchase additional goods and services such as furniture, appliances, landscaping, and curtains. All these purchases create additional jobs and income which is spent in the community. Students need to understand how a loan impacts economic activity in the community.

Banks receive deposits from savers and provide loans to borrowers. Banks provide an incentive12 to savers by paying interest13 on the deposits, and then charging interest to borrowers. The difference between the two is the bank’s profit. A bank is a business, like any other, seeking to maximize profit and minimize costs. Banks also facilitate exchange by providing access to money. Bank depositors can write checks or withdraw cash in order to purchase goods and services.

9 Capital goods are also called capital resources. Capital goods are goods produced and used to make other goods and services. Factories, machines, tools, office buildings, delivery trucks, bulldozers, microscopes, and cash registers are examples of capital goods.10 Gross domestic product is the total market value of all final goods and services produced in a country in a year.11 Standard of living is a measure of the material well being of a country’s citizens. It is often measured as the gross domestic product per capita.12 Economic incentives are the additional rewards or penalties people receive from engaging in more or less of a particular activity. Understanding incentives helps people to make choices. Positive incentives in the classroom might be points for good behavior that can be spent at the school store. Negative incentives might be loss of recess time for failure to complete homework assignments.13 Interest is money people receive for allowing the bank or someone else to use their money. Interest can also mean the fee a borrower pays for a loan. It is the price people pay for using other people’s money.


The standard refers to other financial markets which includes the bond market and stock markets.14 At grades 4–5, focusing on how banks work and their impact on the community is sufficient.

Here is an assessment item that illustrates the measurement of this benchmark.

The population of this town has increased by 2,000 in the past year.

How might a bank help one of these businesses meet the increased demand for its goods and services? Use one of the businesses from the town map to explain your answer.

This item asks students to explain how a bank could help one of the businesses in a town meet the increased demand for its goods and services that might result from the increase in population. The item gives the student specific information in the graphic about the town, and the student uses this information and knowledge about the role of banks in the economy to answer the question. The item is open-ended, 14 A corporation or government might issue a bond to raise financial capital. A government, for example, might use funds raised from the sale of bonds to build schools or highways. The government borrows money from its citizens by selling its promise to return the price of the bond plus interest after a set period of time. Stock represents a piece of ownership in a firm. A firm might sell stock to raise financial capital by selling shares of ownership in the businesses. People buy stock in a firm to receive a share of the firm’s profits (dividends). Stocks and bonds are traded in markets where supply and demand determines their price.


which means that there is more than one way to answer this question correctly. However, the answer must reflect an understanding of the role of banks in the economy. A student would also need to connect the explanation of how the bank would help to a specific example using one of the businesses in the graphic. Expanding the explanation to include an example shows a deeper understanding of the standard. The example must be accurate and relevant to the explanation.

Reasons for Banks, an instructional unit for the Delaware Recommended Curriculum that measures Economics Standard Two 4-5a, is recommended for 5th grade students.

Banks and the Community, a performance task for the Delaware Recommended Curriculum, is recommended for 5th grade students. A performance task is a collection of questions and activities connected to a single theme or scenario that challenge students to apply their knowledge and skills to complex real-world problems. It is meant to measure capacities such as depth of understanding, writing and research skills, and complex analysis of multiple sources.


http://www.doe.k12.de.us/cms/lib09/DE01922744/Centricity/domain/66/performance%20tasks/Banks%20and%20the%20community%20performance%20task.docx

http://www.doe.k12.de.us/cms/lib09/DE01922744/Centricity/domain/66/grade%205/Reasons%20for%20Banks%20gr%205.docx

ECONOMICS ANCHOR STANDARD THREE: Students will understand different types of economic systems and how they change [Economic Systems].


Because resources are scarce, societies must organize the production, distribution, and allocation of goods and services.

The way societies make economic decisions depends on cultural values, availability and quality of resources, and the type and use of technology.

Changing economic systems impact standards of living.

Different economic systems—traditional, command, market, and mixed market15—have evolved over time. Each of these systems has costs and benefits for its citizens. Students will be more empowered when they comprehend how interdependent the world has become and what their role in the economy is.

Underlying the choices and decisions for every economy are the goals of efficiency, equity, freedom, growth, security, and stability.16 Understanding how a society uses its limited resources to achieve these goals involves understanding that trade-offs have to be made. For example, in the United States, political debates about universal health care, social security, and environmental issues revolve around how people value the economic goals. Economic analysis of these issues examines benefits received and costs incurred. Economists utilize dollars and cents to quantify trade-offs related to the use of productive resources. However, some goals, such as freedom and equity, are not easily quantified; yet, 15 In a traditional economy the basic economic questions of what, how, and for whom to produce are answered by custom—the same way they have always answered them, and no one has ownership of the productive resources.

In a command economy the basic economic questions of what, how, and for whom to produce are answered by government central planners and government has ownership of the productive resources.

In a market economy the basic economic questions of what, how, and for whom to produce are answered through the interaction of consumers and producers with price acting as the rationing device. Resources are owned by individuals.

In a mixed market economy the basic economic questions of what, how, and for whom to produce are answered through individual decisions of consumers and producers with some government involvement.

16 Efficiency – Refers to how well scarce productive resources are allocated to produce the goods and services people want and how well inputs are used in the production process to keep production costs as low as possible.Equity – Fair distribution of resources, goods, and services. The problem is that “fair” is differently defined by many individuals and groups.Freedom – Owning, controlling, and making decisions about how to use one’s own resources.Growth – Overall increase in the production of goods and services in an economy during a specific period of time (measured by gross domestic product adjusted for inflation).Security – Knowing that one has a job and can support oneself and family (measured by the unemployment rate).Stability – Overall general level of prices remains about the same (measured by the inflation rate).


have to be considered when making these decisions. Therefore, elected representatives choose based on what they or their constituencies value.


Economics Standard Three 4-5a: Students will identify different means of production, distribution, and exchange used within economic systems in different times and places.

Essential Questions How does getting what you want within an economic system depend on

where and when you live? In what ways do economic systems differ and why?

An economy is an organized arrangement for producing goods and services to satisfy people’s wants. In any economy, productive resources17 used to produce these goods and services are scarce. Therefore, choices must be made. This requires an economy to answer three basic economic questions—what goods and services to produce, how to produce them, and who will get them. In grades 4–5, this means students need to study how different types of economic systems answer these basic questions. The information presented in grades K–3 is examined in more detail at grades 4–5 using the context of different times and places and different economic systems.

In Standard Three, emphasis is placed on production, distribution, and exchange. Production refers to how goods and services are produced. Are goods handmade by individual craftsman, specialists, specialization, and division of labor18 or with the use of extensive technology? In grades 4–5, students should learn about different ways goods are produced and the advantages and disadvantages of

17 Productive resources consist of what is required to produce the goods and services people want. Productive resources fall into three basic categories: human resources, natural resources, and capital resources sometimes called capital goods.18 Craftsmen produce goods but do not share the work. Each person produces his or her own good from the first step to the last. Craftsmen may share tools and equipment but not labor.Specialization occurs when a group (or individual) produces a smaller range of goods and services than they consume. For example, teachers specialize in providing education. Teachers usually do not cut their own hair or repair their own cars. They depend on a hair stylist and a mechanic for these services.Specialization of labor or division of labor occurs when human resources (workers) perform only a single, or very few, step(s) in the production of a product as they do when working on an assembly line.Technology is the operation and processes of how work is done. Students often have misconceptions about technology thinking it refers to more recent technology such as robotics and computers. In fact, technology includes many ways of doing work. This includes a craftsman making goods by hand, the assembly line, division of labor where the production of a good is broken down into numerous separate tasks, and new tools and equipment such as computers.


different methods.19 This usually includes producing something first using the craftsman method and then the specialization and division of labor method.

Craftsmen produce goods but do not share the work. Each person produces his or her own good from the first step to the last. Craftsmen may share tools and equipment but not labor.

Specialization is when people concentrate their production on fewer kinds of goods and services than they consume. For example, instead of producing several goods, a group or business will concentrate on producing just one good.

Division of labor or specialization of labor means human resources (workers) perform only a single, or very few, step(s) in the production of a product, as they do when working on an assembly line. Specialization and division of labor usually increase the productivity of workers which means an increase in the number of goods produced per worker. Productivity is a measurement of output per worker. Productivity is measured by dividing output (goods and services) by inputs used to produce the output. If a company has 5 workers (inputs) who produce 20 goods (output), worker productivity is 4. Productivity can be increased through specialization and division of labor, by investment in human capital (education and training), and investment in capital goods (tools and equipment).

Distribution refers to allocation20 of goods and services. Exchange refers to how goods and services are traded and paid for.

The three types of economic systems—traditional, command, and market—have different ways to answer the three economic questions. On the simplest level, traditional economies tend to do things the way they have always been done. Members of these societies tend to produce what they have always produced using the same methods as their ancestors and distribute or allocate the final products the way custom dictates.

In command economies, central planners determine what and how much to produce based on politically determined goals. Central planners also determine the type and combination of resources used to produce the goods and services. In command economies, the “for whom” question is answered by central planners who set wages, incomes, and prices for goods and services. Prices are usually set below the market price creating shortages.

19 Advantages and disadvantages of different production methods – Advantages of the craftsman method of production include the satisfaction of producing a product from beginning to end and variety during the workday. Disadvantages include learning and perfecting all the skills needed for production, slower production, and the need to stop and retool. Advantages of specialization of labor and division of labor include speed and expertise from learning only one step of the process and not needing to retool or wait to use resources. Disadvantages include boredom from doing the same job all day and what to do when workers are absent and other workers do not have the same skills. An advantage of specialization is individuals become very good at what they do. A disadvantage is specialists must rely on others to produce the goods and services they do not produce.20 Allocation means how an economy will decide or determine who gets the goods and services produced. Different economic systems allocate goods and services differently.


In a market economy, consumer preferences, producer costs, and profit considerations determine what and how much of a good or service to produce. The decision of which resources to use, in what combinations, and with what technology is made by individual businesses. They use the mix of human, natural, and capital resources that minimizes production costs and maximizes profits. Human resources earn income which determines the amount of goods and services they can purchase. Producers compete for consumer dollar votes and use information about spending patterns and their production costs to make production and pricing decisions.

Over time, different methods have been used to facilitate the exchange21 of goods and services. These range from barter to commodities to representative money to fiat money.

Barter is the direct exchange of goods and services without the use of money. For bartering to occur, there must be a coincidence of wants. That is, each trade participant must be willing to trade what they have in exchange for what the other participant is willing to give up. Students in this grade cluster may already do this at lunchtime. This means of exchanging goods and services is time consuming, greatly restricts economic activity, and limits specialization. The use of money solves these problems.

Commodity money is a good that has value both as money and as a good. Examples of commodities that have been used as money include wampum, tobacco, nails, animal skins, musket balls, corn, wheat, silver, and gold.

Representative money is a token or certificate that can be exchanged for a fixed amount of a commodity such as gold or silver. During the late 19th century and early 20th century, most currencies were examples of representative money. They were based on the gold standard and, in theory, could be exchanged for a fixed amount of gold.

U.S. currency today, called Federal Reserve notes, is fiat money. It is not backed by gold or silver and has been decreed by government to be acceptable in exchange for goods and services.

Anything used as money22 must perform three functions. These are:1. Medium of exchange – Money acts as a go-between to make it easier to buy

things. Sellers agree to accept it in exchange for goods and services.2. Unit of account – Money serves as a way to measure and compare the value

of goods and services in relation to one another. When comparing prices, individuals can determine if one good is a better buy than another. It also allows people to keep accurate financial records.

3. Store of value – Money allows people to hold on to their money and have it maintain its value. If individuals save their money, it will not diminish in value.

21 Exchange is trading goods and services with people for other goods and services or for money. People willingly or voluntarily exchange goods and services because they expect to be better off after the exchange.22 Money is anything widely accepted as final payment for goods and services.


For something to serve effectively as a medium of exchange, it must meet certain characteristics.

Durable – Money must be able to withstand the wear and tear of many people using it.

Portable – Money must be easy to carry. Divisible – Money must be easily divided into small parts so people can

purchase goods and services of any price. Relatively Stable in Value – Money keeps its purchasing power over long

periods of time. Relatively Scarce – Whatever is used as money must be scarce or hard for

people to obtain. Acceptable – Whatever is used as money must be accepted by consumers

and producers as a medium of exchange.

Economic Systems, an instructional unit for the Delaware Recommended Curriculum that measures Economics Standard Two 4-5a, is recommended for 4th grade students.


http://www.doe.k12.de.us/cms/lib09/DE01922744/Centricity/domain/66/grade%204/Economic%20Systems.doc

ECONOMICS ANCHOR STANDARD FOUR: Students will examine the patterns and results of international trade [International Trade].


Individuals and nations trade when all parties expect to gain. Nations with different economic systems often specialize and become

interdependent as a result of international trade. Government actions that promote competition and free trade among people

and nations increase the health of an economy and the welfare of nations.

As specialization and the division of labor have increased, individuals, communities, and nations have engaged in trade which increases the standard of living. By specializing in what one can produce at the least cost and trading that with others, efficient use of resources can be attained and overall benefits increased. Economists call this process comparative advantage. Costs incurred by international trade include unemployment increases in the short run as labor resources are reallocated. Benefits from that trade are lower prices and better quality to consumers whose purchasing power increases. As a result of international trade, people on the planet have become more and more interdependent. Economics as a discipline provides the lens for focusing on how best to use the world’s limited resources.

Economics Standard Four 4-5a: Students will demonstrate how international trade links countries around the world and can improve the economic welfare of nations.

Essential Questions Under what conditions does international trade occur? How does international trade increase standards of living?

International trade most often takes place between private citizens, both consumers and producers, who live in different countries. These citizens specialize23 and produce those goods and services they can produce at the lowest cost. They then trade for goods that would cost them more to produce. Citizens, both importers and exporters, from these countries trade because they expect to be better off. For example, Americans might decide to import cars and bananas and export wheat and machinery because they expect to gain. The same goes for individuals in countries that sell cars and bananas to Americans and buy wheat and machinery

23 Specialization occurs when a group or individual produces a smaller range of goods and services than they consume. For example, teachers specialize in providing education. Teachers usually do not cut their own hair or repair their own cars. They depend on a hair stylist and a mechanic for these services. A country might have the resources to produce cell phones and microwave ovens. It decides to specialize. It can produce cell phones at a lower cost than it can produce microwave ovens. It uses its resources to produce cell phones and trades with another country for microwave ovens.


from Americans. Because their resource base is limited, both countries gain from the trade.

International trade results in individuals specializing, which increases production of goods and services. Therefore, there are more goods and services for people to buy, and their standard of living rises. Standard of living is often measured by gross domestic product per capita.24 International trade links countries around the world making them interdependent.25 International trade has costs as well as benefits. One of these costs is the possibility that a trading relationship can break down and cause hardship to citizens in both countries.

Thinking Economically, an instructional unit for the Delaware Recommended Curriculum that measures Economics Standard Two 4-5a, is recommended for 5th grade students.

24 Gross Domestic Product (GDP) is the total market value of all final goods and services produced in a country in a year. Gross Domestic Product per capita is determined by dividing a country’s gross domestic product by the country’s population. It is used to determine a country’s standard of living. If Country A has a GDP of $1000 and Country B has a GDP of $2000, students might say that Country B has a higher standard of living because it has a higher GDP. With additional information that Country A has a population of 50 and Country B’s population is 200, students can determine that Country A’s GDP/capita is $20 and Country B’s is $10. Country A has the higher standard of living.25 Countries become interdependent when they rely on other countries to get the goods and services they want.


http://www.doe.k12.de.us/cms/lib09/DE01922744/Centricity/domain/66/grade%205/Thinking%20Economically.doc

· web vieweconomics studies how people, acting as individuals or in groups, decide to use scarce...

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