Economic Systems 10/27/09 Econ 1

Traditional Economy  In a traditional economy, roles and economic decisions are defined by custom

Traditional Economy  Individuals are not free to make decisions based on what they want or would like to have

Traditional Economy  Examples: African Mbuti Australian Aborigines Northern Canada Inuits(Eski mos)

Traditional Economy  Advantages Everyone knows which role they play in economy Little uncertainty about WHAT, HOW and FOR WHOM to produce

Traditional Economy  Disadvantage Discouragement of new ideas and new ways of thinking Lower standard of living

Command Economy  In a command economy a central authority determines WHAT, HOW and FOR WHOM to produce

Command Economy  Individuals have little, if any influence over how the basic economic questions are answered

Command Economy  Examples: North Korea Cuba People’s Republic of China

Command Economy  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

Command Economy  Disadvantages Consumer needs may not be met Hard work is not rewarded The decision making bureaucracy delays important decision Little flexibility to deal with day-to- day problems Individual initiative goes unrewarded

Market Economy  In a market economy, producers and consumers decide WHAT, HOW and FOR WHOM to produce

Market Economy  In each market transaction, the consumer’s dollar acts as a “vote” ensuring that producers continue to bring to market the goods and services that consumers want to buy

Market Economy  Examples: United States Canada Japan South Korea Singapore Most of Western Europe

Market Economy  Advantages Ability to adjust to change Individual freedom Little government involvement Variety of goods and services High degree of consumer satisfaction

Market Economy  Disadvantages Inability to meet every person’s basic needs Inadequate job of providing some highly valued services: justice, education, health care Citizens face a high degree of uncertainty and the chance of market failure