Economics – Chapter 2, Section 1 Economic Systems Traditional Economies In a traditional economy, roles and economic decisions are defined by customs. Examples include the central African tribes or the Australian Aborigines.

Economics – Chapter 2, Section 1 Economic Systems Advantages Everyone knows which role to play and there is little uncertainty about WHAT, HOW, and FOR WHOM to produce. Disadvantage The discouragement of new ideas and new ways of thinking. This leads to a lower standard of living than other societies.

Economics – Chapter 2, Section 1 Economic Systems Command Economies In a command economy, a central authority determines WHAT, HOW, and FOR WHOM to produce. Command economies include North Korea, Cuba, the former Soviet Union, and the People’s Republic of China.

Economics – Chapter 2, Section 1 Economic Systems 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. Disadvantages Consumer needs may not be met The necessary decision-making bureaucracy delays decisions Little flexibility to deal with day-to-day problems Individual initiative goes unrewarded

Economics – Chapter 2, Section 1 Economic Systems Market Economies In a market economy, producers and consumers determine WHAT, HOW, and FOR WHOM to produce. In each market transaction, the consumer’s dollar acts like a “vote,” ensuring that producers continue to bring to market the goods and services that consumers want to buy. Example include: US, Japan, Canada, South Korea, and parts of Western Europe.

Economics – Chapter 2, Section 1 Economic Systems Advantages The ability to adjust to change The high degree of individual freedom The small degree of government involvement The ability to have a voice in the economy The variety of goods and services created The high degree of consumer satisfaction Disadvantages The inability to meet every person’s basic needs A poor job of providing some highly valued services such as justice, education, and health care. High level of personal uncertainty and the prospect of economic failure.

Economics – Chapter 2, Section 1 Economic Systems Answer the following questions. How would your life be different if you had grown up in a traditional economy? In what ways are traditional and command economies alike? In what ways are they different? In the 1990s, many countries, especially in Eastern Europe, moved from command economies toward market economies. What problems do you think they faced as they made this change?