Economic Systems

Traditional Economy

Economic decisions stem from rituals or customs

Traditional Examples

Hunter gathers and farmers

Inuit tribe of north Canada

Traditonal Strengths

Everyone knows their own role

Little uncertainty on what to do and how to produce

Tradtional Weaknesses

Tend to discourage new ideas

Lack of progress = lower standard of living

Command Economy

A central authority makes the decisions about the what, how and whom

Command Examples

North Korea, Cuba, former Soviet Union

Command Strengths

Can change directions whenever

Almost everyone is employed and earning a salary

Command Weaknesses

Quality/choice is a problem

Lack of incentive to work hard

Market Economy

People/firms act in their own interests to answer the what, how, whom

Market Examples

U.S., Japan, Germany

Market Strengths

Effiecient

Higher degree of consumer satisfaction

Market Weaknesses

Produces for only those who can pay

Does not provide production for many public goods

Uncertain and unstable

Capitalism

Market economy

Means of production are privately owned

Supply and demand determine prices

Capitalism Advantages

Freedom to start any business

Capitalism Disadvantages

Business can fall apart and you lose everything

Socialism

Command AND market economy

Govt. owns and runs some of the basic productive resources but others are privately owned.

Socialism Advantages

Distribution of benefits throughout society

Socialism Disadvantages

Higher taxes

Communism

Command economy

Needs of society> needs of the individual

Govt. controls all of economy

Communism Advantages

Equality

Communism Disadvantages

Lack of incentive to work hard
No individual freedom

Traditional What, How, and Who

What: Food products like fish

How: The way they have been doing it for centuries

Who: The tribe

Command What, How, and Who

What: Whatever the govt. decides to produce

How: Whichever way the govt. tells you

Who: For the people of their country

Market What, How, and Who

What: Whatever I want to make

How: Whatever is cheapest and turns a big profit

Who: A lot of people (hopefully)