ECONOMIC SYSTEMS

ECONOMIC SYSTEM  an organized way of providing the wants and needs of people  3 major types  Traditional  Command  Market  However, most nations use a mix of all 3 of these

TRADITIONAL  Economic activity comes from ritual, habit or custom  People are not free to make their own economic decisions, instead their roles are defined by elders and ancestors  Where? Central Africa Mbuti Tribe and the Inuit of Northern Canada

TRADITIONAL Advantages:  Everyone knows their role  You know exactly what, how, and for whom to produce Disadvantages:  Discourages new ideas  Punishes people who act differently  Economic stagnation  Lower standard of living

COMMAND ECONOMY  A central authority makes major economic decisions  They decide what houses will be built – limiting property rights  People do not own their homes, business and other resources although they can have personal items and tools  Limits individual freedom  The government tends to favor itself

COMMAND: ADVANTAGES AND DISADVANTAGES Advantages:  It can change direction quickly – shifting resources  Health and public services are available at no cost  North Korea, Cuba, and the former Soviet Union Disadvantages:  They ignore the basic wants and needs of their people  Concerned with filling quotas instead of quality products  Requires a large decision making body – this can slow decision making  Lacks the flexibility to deal with day to day problems  Little individual incentive

MARKET ECONOMIES  People make the decisions for their own interest  Great deal of freedom – people spend their money on products that they want most  This helps producers know WHAT to produce, businesses source HOW, and the people answer for WHOM  Private ownership of resources – capitalism  US, South Korea, Japan, Singapore, Australia, Great Britain, Western Europe

MARKETS: ADVANTAGES AND DISADVANTAGES Advantages:  Individual freedom  Adjusts gradually to change  Small amount of government interference  Decision making is decentralized  Lots of variety  High degree of consumer satisfaction Disadvantages:  Doesn’t provide for everyone – some are left out – old, sick, poor  Cannot provide some basic goods and services  High degree of uncertainty