Economic Systems Economic Systems Economic system an organized

Economic Systems

Economic Systems • Economic system- an organized way of providing for the wants and needs of their people. • 3 types- Traditional, command, and market

Traditional Economy • TE- allocation of scarce resources, nearly all economic activities, stems from ritual, bait, or custom • Ex: Australian Aborigines, Canadian Inuits

Pros and Cons of Traditional Economies • Pros • Cons • Everybody knows their • Strict rules dictate life, role (The What) thus no creativity • Learn your roles from • No progress generally parents and traditions means lower standards (The How) of living • The Who- also determined by custom and tradition

Command Economies • CE- government or central authority decides the who, what, and how • People have little influence

Command Economies Advantages • Can change direction drastically in a relatively short time. • Ex. Soviet Union- went from agricultural society to industry power house. • How- shifted all resources toward industry, while cutting consumer goods

Command Economies Advantages • No uncertainty • Government tells the people what to do

Command Economies Disadvantages • 1. Not designed to meet the needs of the people (consumers) • 2. No incentive for hard work- most people receive same wages, only work to fill out quotas – This also kills creativity

Command Economies Disadvantages • 3. Large bureaucracymany people and paper work involved in system • 4. Bureaucracy slows down country’s ability to deal with day to day problems

Market Economies • People and companies determine the What, How, and for Whom

Advantages of Market Economy • 1. Over time has the ability to adjust to change- Ex. Cars in the US • 2. Individual freedoms - people can decide what to make, as well as what to buy

Advantages of Market Economy • 3. Small degree of government interference • 4. Decision making is in the hands of many, not centralized • 5. Variety of goods and services

Disadvantages of Market Economy • 1. Some people (too old, too sick) don’t have needs met • 2. Uncertainty of workers

What type of Economy is the US? • Most countries do not directly fit into one category • Most are mixed economieswith aspects of market and command • Ex. US auto makers can make any type of cars they want (market), as long as they comply with pollution regulations (command)