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Economic Systems and Decision Making

Economic Systems and Decision Making. Chapter 2. Economic Systems. Traditional Economy Allocation of resources stems from ritual, habit, or custom Strengths Everyone knows their role Weaknesses Discourages new ideas Lack of progress. Economic Systems. Command Economy

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Economic Systems and Decision Making

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  1. Economic Systems and Decision Making Chapter 2

  2. Economic Systems • Traditional Economy • Allocation of resources stems from ritual, habit, or custom • Strengths • Everyone knows their role • Weaknesses • Discourages new ideas • Lack of progress

  3. Economic Systems • Command Economy • Central authority makes economic decisions • Strengths • Capable of dramatic changes • Weaknesses • Doesn’t meet needs of consumers • Lacks incentive • Large bureaucracy • Little flexibility • New ideas discouraged

  4. Economic Systems • Market Economy • People and firms answer economic questions • Strengths • Adjusts to change gradually • Individual freedom • Decentralized decision making • Variety of goods and services • Consumer satisfaction • Weaknesses • Rewards only productive resources • Must guard against market failures

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