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- Comparing Economic Systems: Traditional, Command, and Market Economies -

Learn about the characteristics, advantages, and disadvantages of traditional, command, and market economies. Explore how each type functions and impacts society's wants and needs. Understand the pros and cons of these economic systems. -

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- Comparing Economic Systems: Traditional, Command, and Market Economies -

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  1. Ch 2.1: Economic Systems

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

  3. Section Key Terms • economy/ economic system • traditional economy • command economy • market economy

  4. Economic System • An organized way of providing for the wants & needs of a society’s people • Fall under 3 main types: • Traditional • Command • Market

  5. Traditional Economies

  6. 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)

  7. 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

  8. Command Economies

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

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

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

  12. Market Economies

  13. 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

  14. Advantages • 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 • Incredible variety of goods & services available to consumers • High degree of consumer satisfaction

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

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