Economic Systems

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Economic Systems
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All Economic Systems seek to answer the three
basic economic questions

• 1) What to produce?
• 2) How to produce?
• 3) For whom to produce?

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Traditional Economies

• Basic economic questions answered by what has
  been done in the past
• Traditions are maintained
• Ritual, Habit, and Custom

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Traditional economies

• Individual roles and choices are defined by the
  customs of elders and ancestors
• These economies are usually based in societies of
  hunter/gatherers
• Sharing is a big part of these economies

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Examples of Traditional economies

• Australian aborigines

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The Mbuti in Central Africa
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The Inuit of Northern Canada
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How do Traditional economies answer the three
basic questions?

• 1) What to produce? Whatever ritual, habit or
  custom dictates
• 2) How to produce? However ritual, habit or
  custom dictate
• 3) For whom to produce? For whomever ritual,
  habit or custom dictate

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Advantages of Traditional economy

• There is little to no uncertainty
• Everyone knows what role to play
• Life is generally stable, predictable, and
  continuous

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Disadvantages of Traditional economies

• Tend to discourage new ideas and new ways of
  doing things
• Lack of progress lowers standard of living

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Command Economies

• Basic economic questions answered by the
  government (central authority)

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Examples of Command economies

• Only one command economies left North Korea
• All others have mixed in market economy with
  their command structure (China)

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North Korea
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How do Command economies answer the basic
economic questions?

• 1) What to produce? Whatever the government says
  to produce
• 2) How to produce? However the government tells
  you to produce
• 3) For whom to produce? For whomever the
  government tells you to produce (ideally the
  entire society)

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Advantages of Command economy

• Because the government has total control over
  production and its factors, these economies can
  change rapidly.
• Whatever is needed most will be produced.
• There is no uncertainty (people are told when and
  how to work)
• Free education, health care, and other public
  services

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Disadvantages of Command economy

• Economy designed to meet needs not wants
• No incentive to work hard (people dont often
  lose their jobs, so they do the bare minimum to
  get by)
• Large bureaucracy means slow decision making,
  raises cost of production, lacks flexibility
• No reward for initiative which slows progress

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Market Economies

• Basic economic questions answered by consumers
• Dollars Votes

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Examples of Market economies

• USA, Canada, UK, etc. etc.

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Advantages of Market Economies

• Adjusts to change based on consumer wants
• High degree of individual freedom
• Low levels of government interference
• Because individuals (with money) make the
  decisions, everyone (with money) has a voice in
  the way the economy runs
• Wide variety of available goods services
• Many choices high degree of consumer
  satisfaction

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Disadvantages of Market Economies

• Poverty only those with money can participate
• Market does not provide for peoples basic needs.
  Governments must attempt to do this (think
  Katrina).
• High degree of uncertainty people lose jobs,
  businesses fail
• Greed based system puts profit before people

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What is a Mixed Economy?

• A mixed economy blends components of two or more
  of the following economic systems to varying
  degrees traditional, market, and command