Economic Systems How we answer the three basic economic questions: what, how, and for whom?

Four Systems Traditional Command Market Mixed

Traditional Economies Advantages Everyone involved knows which role to play TRADITION Societal norms

Traditional Economies Disadvantages Discourages new ideas and ways of doing things Punishment for ‘breaking the rules’ Lower standard of living due to lack of progress Sheltered from the global economy and innovation

Traditional Economy

Command Economy Advantages Change direction drastically in a relatively short time Health and public services are available to everyone at little or no cost regardless of income

Command Economy Disadvantages Does not meet the needs of the consumer Lack of incentive Large decision making bureaucracy Lack of flexibility to deal with problems Innovation is stifled

Command Economy

Market Economy Advantages Able to adjust to change gradually Individual freedom for everyone Lack of government interference Decentralized decision making Incredible variety of good and services High degree of customer satisfaction

Market Economy Disadvantages Rewards only productive services (does not provide for people too young, too old, or too sick to work Workers and businesses face uncertainty as a result of competition Does not produce enough public goods such as defense, universal education, or health care Must guard against market failure