1. Economic Systems 10/27/09 Econ 1

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

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

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

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

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

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

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

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

10. 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

11. 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

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

13. 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

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

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

16. 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