Economic Systems

Economic Systems Command Market Traditional Mixed

Command In a command economy, a central authority makes the major decisions about WHAT, HOW, and FOR WHOM to produce. Socialism is a modern, somewhat more liberal version of a command economy. The main advantages of a command economy are that it can change direction quickly, and it allows many citizens to receive goods and services they otherwise could not afford. Disadvantages include the loss of individual freedom to choose, the production of low-quality goods, a large decision-making bureaucracy, and lack of individual initiative.

Market A market economy is based on capitalism. Supply, demand, and the price system help people make decisions and allocate resources. People can spend money on what they want and can own resources privately. Advantages of a market economy include a high degree of individual freedom and customer satisfaction, a variety of goods and services, the incentive to take care of private property, and decentralized decision making. Disadvantages include not providing for basic needs of everyone, a shortage of some services, and a high degree of uncertainty.

Traditional In a traditional economy, resource use and social behavior are dictated by ritual, habit, or custom. Examples of traditional economies include the central African Mbuti, the Australian Aborigines, and the Inuit of Northern Canada. The main advantage of a traditional economy is that the answers to WHAT, HOW, and FOR WHOM to produce are determined by customs and tradition. The main disadvantage of a traditional economy is that it tends to discourage new ideas and new ways of doing things.

Mixed In a mixed economy, tradition, government, and markets each answer some of the WHAT, HOW, and FOR WHOM questions. Mixed economies come about when people from one type of economy come into contact with other cultures and adopt their technologies and ways of doing things, or when people are unhappy with the way their economy is performing. In a mixed economy, the state’s involvement in economic decisions can vary considerably. A mixed economy includes characteristics of traditional, command, and market economies.

Mixed Examples Communist economies are based on the theoretical ideal of communism, in which everyone contributes according to their abilities and consumes according to their needs. There has never been a true communist economy; those who claim to be communist are actually a version of extreme socialism. In mixed socialism, the government owns and controls some, but not all, of the basic productive resources. Mixed market economies are market economies that have elements of socialism or traditional economies. The United States is considered a mixed market economy.

Mixed Advantages of mixed economies include: Providing assistance for people who might be left out of the country’s economic progress Faster growth than command economies Disadvantages of mixed economies include: Higher tax rates to support social benefits Limited availability of services or decreasing quality of services Lower efficiency than pure capitalism Governments are likely to see market-oriented reforms as a threat