2. 3 main economic systems  Traditional  Market  Command

3. Traditional Economy Advantages  Offer the advantages of stability  Emphasize the spiritual and cultural aspects of life Disadvantages  Often have widespread poverty  Social restrictions restrain human potential  People must follow the dictates of custom rather than having the freedom to make their own economic choices

4. Command Economy Advantages  Income Distribution There is more of an attempt to distribute income more equally because a country operating under the command economy can choose to distribute income among its citizens on the basis of considerations other than purely economic ones  Economic Growth Central planners can focus on promoting the rate of economic growth by devoting more resources to developing certain types of goods (e.g. Stalin focused on developing capital goods to industrialize Russia)

5. Command Economy Disadvantages  Planning Difficulties Incorrect estimates of future conditions are all too easy to make, leading to overproduction of some items and underproduction of others  Inefficiencies The incentive to earn more profit for one self is take away, thus waste and an inefficient use of resources result Corruption of government official is also a frequent problem Planners often focuses on meeting quotas, thus often emphasizes on quantity over quality of goods  Lack of Freedom Individual economic and political freedom are inhibited

6. Market Economy Advantages  Consumer Sovereignty Decisions of what to produce is ultimately guided by the needs and wants of consumers  Prices Co-ordinates the activities of buyers and sellers to stop either too much or too little of an item from being produced  Innovation Incentive to make a profit encourages innovation and entrepreneurship, which help foster advances in technology New and better products are introduced in the market as a result

7. Market Economy Disadvantages  Income Distribution The distribution of income can create significant inequities if households’ incomes are based solely on the ability to supply economic resources  Market Problems Private markets do not always operate in a way that benefits society as a whole, thus leading to problems such as pollution  Instability Can display considerable instability in the total output produced from year to year, resulting in variations in prices or employment level