1. Economic Systems
Chapter 2
Lesson 1

2. Economies Based on Tradition
Traditional economy
Resource use & Social behavior - ritual, habit, or custom
Resources divided among tribe
Hunter who kills gets first choice
Examples - Australian Aborigines, Inuit of Northern Canada
Advantages
Answers to WHAT, HOW, and FOR WHOM to produce
Determined by customs and tradition.
Stability, certainty about questions of production.
Disadvantages
Discourage new ideas / new ways of doing things.
Lack of innovation
Stagnation and low quality-of-life likely

3. Economies Based on Command
Command economy
Central authority makes the major decisions
WHAT, HOW, and FOR WHOM to produce.
Socialism
Modern, somewhat more liberal version of command economy
Advantages
Change direction quickly
Allows many citizens to receive goods and services they otherwise could not afford.

4. Economies Based on Command
Command economy
Disadvantages
Leaders provide for themselves
Loss of individual freedom to choose
Production of low-quality goods
Large decision-making bureaucracy
Lack of rewards for individual initiative
Planning Bureaucracy lacks flexibility
Economies remain small
Too many decisions to handle efficiently

5. Economies Based on Markets
Market economy - based on Capitalism
Capitalism – Private ownership of resources
Market Economy – Exchange of goods and services
Supply, demand, and price system help people make decisions and allocate resources.
People can spend money on what they want
Own resources privately.

6. Economies Based on Markets
Advantages
High degree of individual freedom
Adjusts gradually to change
Small degree of government interference
Decentralized decision making
Variety of goods and services
High degree of customer satisfaction
Incentive to take care of private property
Disadvantages
Not providing for basic needs of everyone
Shortage of some services
High degree of uncertainty