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Economic Systems and Decision Making

Explore traditional, command, and market economies, highlighting strengths & weaknesses in resource allocation. Discover how decision-making differs in each system.

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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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