Comparing Economies: Traditional, Command, Market, and Mixed

Three Economic Questions There are three questions every society must answer: 1. What will be produced? 2. How will it be produced? 3. For whom will it be produced? The way these questions are answered determines the economics system used. Economic system: the method used by a society to produce and distribute goods and services.

Traditional Economy In an traditional economy individuals and tribes make the decisions. Often these decisions are based on customs, traditions, and religious beliefs.

Characteristics of a Traditional Economy A traditional economy is defined by three characteristics: 1. It is based on agriculture, fishing, hunting, gathering or some combination of the above. 2. It is guided by traditions. 3. It may use barter instead of money. Little surplus is produced. Mostly viewed as poor. However, most daily needs are meet. Ex. The Inuit, Haiti, Native American tribes prior to 1492

The good & the bad What is good about Traditional Economies?  Distribution of resources is well-known.  Everyone knows their role in production.  Everyone knows what they are going to receive.  Less destructive to the environment (more sustainable) What is bad about Traditional Economies?  People are vulnerable because of sudden changes in nature  also means they don’t have the same resources/technology as command or market based countries  may lead to conflict  Limit population growth

Traditional Economy Examples of Traditional Economies in history. Native Americans Tribes in Africa Amish Community

Command Economy In a command economy the government makes all the decisions. Governments in a command economy are usually led by a dictator and/or are totalitarian governments.

Command Economy In an command economy the government owns the major industries. Because of this the government controls the quantity (amount) of goods produced and there prices. The government also controls the wages of the workforce producing the goods.

Advantages and Disadvantages What is GOOD about Command Economy? Low unemployment- everyone has a job Great Job Security-the government doesn’t go out of business Equal incomes means no extremely poor people Free Health Care What is BAD about Command Economy? No incentive to work harder No incentive to innovate or come up with good ideas No Competition keeps quality of goods poor. Corrupt leaders Few individual freedoms 9

Command Economy Examples of command economies in history: The Soviet Union under Joseph Stalin. China under Mao Zedong Cuba under Fidel Castro

Market Economy In a market economy businesses make decisions based on consumer demands. Consumers and supply and demand decide what should be made. There is NO government involvement. Lasssez-faire: government is “hands off”

Market Economy Businesses produce goods bases on consumer’s demands. Supply and demand determines the price of goods. In a market economy businesses are owned by individuals, entrepreneurs, and private businesses.

Market Economy Examples of market economies in history: England/Great Britain during the Industrial Revolution. The U.S. during the Industrial Revolution.

Mixed Economy In a mixed economy decisions are made by business based on consumer demands. However, the government also makes some decisions: Regulates trade Ensures safety of consumers Protects the environment.

Mixed Economy Businesses produce goods bases on consumer’s demands. Supply and demand determines the price of goods. In a market economy businesses are owned by individuals, entrepreneurs, and private businesses.

Mixed Economy Examples of Mixed Economies in History: The United States Majority of today’s nations.