Economic Systems Four Types Traditional Command Market Mixed

Economic Systems

Four Types… • • Traditional Command Market Mixed

Traditional Economy • Occurs when the use of scarce resources stems from ritual, habit, or custom • Habit and custom dictate social behavior • Individuals are NOT free to make decisions based on what they want or would like to have • Their roles are defined by the customs of their elders and ancestors

Traditional Examples • The African Mbuti or the Australian Aborigines, Inuit of Canada • The Inuit: – Parents teach their children how to survive in the harsh economy – They would share the kill among one another – The hunter got first choice and so on… – Because of the generosity, the culture has

Mbuti

Aborigines

Aborigines and Europeans Sharing African Roots?

Advantages and Disadvantages • Advantages: • Everyone knows their role • Everyone knows what to produce • The how question is answered through tradition • The whom is determined by custom • Disadvantages: • Discourages new ideas • Lack of progress leads to economic stagnation • Lower standard of living

Command Economy • A central authority makes all the decisions • Headed by a king, dictator, or president • The government decides what will be built such as houses or apartments as well as who will receive them • They limit property rights • People cannot own their homes or businesses • Individual freedom is limited

Examples… • Because they are unproductive, not many exist today… • North Korea • Cuba • In the 1970 s and 1980 s, the Soviet Union was an example

Advantages and Disadvantages • Advantages: • • It can change direction • drastically • Health and public • services are available to most a little or no cost • Disadvantages: Ignore the basic wants and needs of consumers People only strive to fill quotas, not produce good products Requires a large bureaucracy • Cannot deal with minor issues quickly

Market Economy • People make the decisions in their own best interest • Buyers and sellers come together to exchange goods and services • Great deal of freedom • The what, how, and for whom are determined by the people • The market itself answers these questions • Most are based on capitalism – where the people own the factors of production

Examples… • Many of the most prosperous economies in the world are markets • The United States, Japan, South Korea, Singapore, Australia, and Great Britain

Advantages and Disadvantages • Advantages: • Individual freedom • Adjusts gradually to change • Little government interference • Decentralized decision making • Variety • High degree of consumer satisfaction • Disadvantages: • Does not provide for everyone – old and sick • Does not provide some basic goods and services – health care • Uncertain – companies can decided to move to another location and not tell employees or competition may put

Mixed Economies • The real world is not this orderly to only have 3 – most are a mix • Socialism and Communism are examples • Your job is to describe these 2, give examples, and tell me the advantages and disadvantages