Economic Systems and Decision Making

Traditional Economy Economy stems from ritual habit Economy stems from ritual habit Advantages: Advantages: Generally, people know their roles.Generally, people know their roles. What, How, and For Whom.What, How, and For Whom. Disadvantages: Disadvantages: Discourages new ideasDiscourages new ideas low standard of livinglow standard of living

Command Economy Central authority makes most of the economic decisions. What, How, and For Whom. Central authority makes most of the economic decisions. What, How, and For Whom. Advantages: Advantages: Can make drastic changes very quicklyCan make drastic changes very quickly many have health caremany have health care Attempts to provide equity for allAttempts to provide equity for all

Command Economy (cont.) Disadvantages: Disadvantages: Lack of basic consumer needsLack of basic consumer needs little incentive to innovatelittle incentive to innovate little incentive to work hardlittle incentive to work hard large bureaucracy limits flexibilitylarge bureaucracy limits flexibility Examples: Examples: CubaCuba USSRUSSR North KoreaNorth Korea China (moving toward a market economy)China (moving toward a market economy)

Market Economy People and firms act in their own best interest. People and firms act in their own best interest. Buyers and sellers come together. Buyers and sellers come together. Buying = Voting. Buying = Voting. Advantages: Advantages: Adjusts well to changeAdjusts well to change Individual freedomIndividual freedom Less bureaucracyLess bureaucracy It is a way for people to have a voice in societyIt is a way for people to have a voice in society Consumer varietyConsumer variety

Market Economy (cont.) Disadvantages: Disadvantages: Does not guarantee basic services to all citizensDoes not guarantee basic services to all citizens no guarantee of workno guarantee of work Lack of regulation can lead to exploitationLack of regulation can lead to exploitation Examples: Examples: United States, UK, Germany, Japan, and South KoreaUnited States, UK, Germany, Japan, and South Korea

Ch. 2 section 2 Social and Economic Goals Economic Freedom Economic Freedom Economic Efficiency Economic Efficiency Economic Equity Economic Equity Discrimination, false advertisingDiscrimination, false advertising Economic Security Economic Security Protection from layoffs, Social SecurityProtection from layoffs, Social Security Full Employment Full Employment Price Stability Price Stability Economic Growth Economic Growth

Ch. 2 section 3 How do we achieve our social and economic goals? Capitalism and Free Enterprise Capitalism and Free Enterprise Voluntary Exchange Voluntary Exchange Private Property Private Property Profit Motive Profit Motive Competition Competition What is the role of the Government? What is the role of the Government? Ensure and encourage all of the above.Ensure and encourage all of the above.