Economic Systems Chapter 2 Lesson 1

Economies Based on Tradition Traditional economy Resource use & Social behavior - ritual, habit, or custom Resources divided among tribe Hunter who kills gets first choice Examples - Australian Aborigines, Inuit of Northern Canada Advantages Answers to WHAT, HOW, and FOR WHOM to produce Determined by customs and tradition. Stability, certainty about questions of production. Disadvantages Discourage new ideas / new ways of doing things. Lack of innovation Stagnation and low quality-of-life likely

Economies Based on Command Command economy Central authority makes the major decisions WHAT, HOW, and FOR WHOM to produce. Socialism Modern, somewhat more liberal version of command economy Advantages Change direction quickly Allows many citizens to receive goods and services they otherwise could not afford.

Economies Based on Command Command economy Disadvantages Leaders provide for themselves Loss of individual freedom to choose Production of low-quality goods Large decision-making bureaucracy Lack of rewards for individual initiative Planning Bureaucracy lacks flexibility Economies remain small Too many decisions to handle efficiently

Economies Based on Markets Market economy - based on Capitalism Capitalism – Private ownership of resources Market Economy – Exchange of goods and services Supply, demand, and price system help people make decisions and allocate resources. People can spend money on what they want Own resources privately.

Economies Based on Markets Advantages High degree of individual freedom Adjusts gradually to change Small degree of government interference Decentralized decision making Variety of goods and services High degree of customer satisfaction Incentive to take care of private property Disadvantages Not providing for basic needs of everyone Shortage of some services High degree of uncertainty