Economic Systems

10/27/09Econ 1

Traditional Economy

In a traditional economy, roles and economic decisions are defined by custom

Traditional Economy

Individuals are not free to make decisions based on what they want or would like to have

Traditional Economy Examples:

African Mbuti

Australian Aborigines

Northern Canada Inuits(Eskimos)

Traditional Economy

Advantages Everyone knows which role

they play in economy Little uncertainty about

WHAT, HOW and FOR WHOM to produce

Traditional Economy

Disadvantage Discouragement of new ideas

and new ways of thinking Lower standard of living

Command Economy

In a command economy a central authority determines WHAT, HOW and FOR WHOM to produce

Command Economy

Individuals have little, if any influence over how the basic economic questions are answered

Command Economy

Examples: North Korea Cuba People’s Republic of China

Command Economy

Advantages The ability to drastically

change direction in a relatively short period of time

Many basic health and public services are available at little or no cost

Command Economy

Disadvantages Consumer needs may not be met Hard work is not rewarded The decision making bureaucracy

delays important decision Little flexibility to deal with day-to-day

problems Individual initiative goes unrewarded

Market Economy

In a market economy, producers and consumers decide WHAT, HOW and FOR WHOM to produce

Market Economy

In each market transaction, the consumer’s dollar acts as a “vote” ensuring that producers continue to bring to market the goods and services that consumers want to buy

Market Economy Examples:

United States Canada Japan South Korea Singapore Most of Western Europe

Market Economy

Advantages Ability to adjust to change Individual freedom Little government involvement Variety of goods and services High degree of consumer

satisfaction

Market Economy

Disadvantages Inability to meet every person’s basic

needs Inadequate job of providing some

highly valued services: justice, education, health care

Citizens face a high degree of uncertainty and the chance of market failure