Economic Systems

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Economic Systems

• Chapter 2.1

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I. Traditional Economies

• In a traditional economy, roles and economic
  decisions are defined by custom.
• Examples include the central African Mbuti,
  Australian Aborigines, and Canadian Inuits.

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Traditional Economies

• Advantages
• Everyone knows which role to play.
• Little uncertainty about WHAT, HOW, and FOR WHOM
  to produce.

• Disadvantages
• Discouragement of new ideas and new ways of
  thinking.
• Lower standard of living.

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II. Command Economies

• In a command economy, a central authority
  determines WHAT, HOW, and FOR WHOM to produce.
• Examples North Korea, Cuba, former Soviet Union,
  and China.

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C. Advantages

• Two advantages to command economies
• 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.

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D. Disadvantage

• Several disadvantages
• Consumer needs may not be met.
• Hard work is not rewarded.
• Necessary decision-making bureaucracy delays
  decisions.
• Little flexibility to deal with day-to-day
  problems.
• Individual initiative goes unrewarded.

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Discuss This

• In what ways are traditional and command
  economies alike?
• In what ways are they different?

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III. Market Economies

• In a market economy, producers and consumers
  determine WHAT, HOW, and FOR WHOM to produce.
• -The consumers dollar acts as a vote, ensuring
  producers continue to produce what consumers want
  to buy.
• Examples United States, Canada, Japan, South
  Korea, Singapore, and Western Europe.

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C. Advantages

• Numerous advantages
• Ability to adjust to change.
• High degree of individual freedom.
• Small degree of government involvement.
• Ability to have a voice in an economy.
• Variety of goods and services.
• High degree of consumer satisfaction.

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D. Disadvantages

• Also numerous
• Inability to meet every persons basic needs.
• Inadequate at providing services such as
  justice, education, health care.
• High level of economic uncertainty.
• Prospect of economic failure.

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Discuss This

• In the 1990s, many countries, especially in
  Eastern Europe, moved from command economies to
  market economies. What problems do you think
  they faced as they made this change?