1. Ch 2.1:
Economic
Systems

2. Ojectives
Describe the characteristics of the traditional, command & market economies.
Explain the advantages & disadvantages of the traditional, command & market economies.

3. economy/ economic system traditional economy command economy
Section Key Terms
economy/ economic system
traditional economy
command economy
market economy

4. Economic System
An organized way of providing for the wants & needs of a society’s people
Fall under 3 main types:
Traditional
Command
Market

5. Traditional
Economies

6. Definition: Allocation of scarce resources & other economic activity is the result of ritual, habit, or custom
Examples: many indigenous peoples around the world (Mbuti, Aborigines, Inuit)

7. Advantages: Everyone knows which role to play/ little uncertainty exists over WHAT, HOW, and FOR WHOM to produce
Disadvantages: 1. Tends to discourage new ideas & new ways of doing things 2. Lack of progress leads to a lower standard of living

8. Command
Economies

9. Definition: A central authority (government) makes most of the major economic decisions
Examples: North Korea, Cuba (currently); China, Soviet Union (past)

10. Advantages Dramatic change can occur in a short period of time
Many health & public services available to everyone at little or no cost

11. Disadvantages Does not meet the wants of consumers
Does not give people the incentive to work hard
Requires large decision-making bureaucracy
Little flexibility, can’t deal with small, day-to-day changes
New & different ideas discouraged, no room for individuality

12. Market
Economies

13. Definition: People & firms act in their own best interests to answer the WHAT, HOW, and FOR WHOM questions (free enterprise)
Examples: United States, Canada, Japan, South Korea, Great Britain, most of Western Europe

14. Advantages Can adjust to change over time
High degree of individual freedom
Small degree of government interference
Decision-making is not concentrated in the hands of a few
Incredible variety of goods & services available to consumers
High degree of consumer satisfaction

15. Disadvantages
Does not provide for the basic needs for everyone in society (young, old, disabled, etc)
Does not provide enough public services that people value highly
Workers & businesses face uncertainty resulting from competition & change
Must guard against market failure