1 Describe the characteristics of the traditional command

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

• economy/ economic system • traditional economy • command economy • market economy

• 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)

• 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

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

Advantages 1. Dramatic change can occur in a short period of time 2. Many health & public services available to everyone at little or no cost

Disadvantages 1. Does not meet the wants of consumers 2. Does not give people the incentive to work hard 3. Requires large decision-making bureaucracy 4. Little flexibility, can’t deal with small, day-to-day changes 5. New & different ideas discouraged, no room for individuality

• 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

Advantages 1. 2. 3. 4. 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 5. Incredible variety of goods & services available to consumers 6. High degree of consumer satisfaction

Disadvantages 1. Does not provide for the basic needs for everyone in society (young, old, disabled, etc) 2. Does not provide enough public services that people value highly 3. Workers & businesses face uncertainty resulting from competition & change 4. Must guard against market failure