Economic Systems and Decision Making Economic Systems 1

Economic Systems and Decision Making

Economic Systems 1. Traditional Economy 2. Command Economy 3. Market Economy

Traditional Economy • Roles and economic decisions are defined by custom. • Examples would include the Australian Aborigines and Northern Canada Inuits.

Traditional Economy Advantages • Advantages include everyone knows what role they play with little uncertainty about what, how and for whom to produce.

Disadvantages of a Traditional Economy Disadvantages include the discouragement of new ideas and new ways of thinking that could lead to a lower standard of living.

Command Economy • A central authority determines what, how and for whom to produce.

Examples of Command Economies • Includes North Korea, Cuba, the former Soviet Union and China.

Command Economy Advantages • Advantages include the ability to drastically change direction in a relatively short period of time and many basic health and public services are available at no cost.

Command Economy Disadvantages include consumer needs may not be met, hard work is not rewarded, the decision making bureaucracy delays decisions, little flexibility to deal with day to day problems, and individual incentive goes unrewarded

Market Economy • Producers and consumers determine what, how and for whom to produce. Consumer’s dollar acts like a vote ensuring that producers continue to bring to market the goods and services that consumers want to buy.

Examples of Market Economies Examples include US, Canada, South Korea, Japan, and parts of western Europe.

Market Economy Advantages include ability to adjust to change, high degree of individual freedom, small degree of government involvement, a variety of goods and services are created, and a high degree of consumer satisfaction.

Market Economy Disadvantages include inability of the market to meet every person’s basic needs, high level of personal uncertainty, and the prospect of economic failure.