Economic Systems and Decision Making

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Economic Systems and Decision Making
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Economic Systems

• Traditional Economy
• Command Economy
• Market Economy

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Traditional Economy

• Roles and economic decisions are defined by
  custom.
• Examples would include the Australian Aborigines
  and Northern Canada Inuits.

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Traditional Economy Advantages

• Advantages include everyone knows what role they
  play with little uncertainty about what, how and
  for whom to produce.

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Disadvantages of a Traditional Economy

• Disadvantages include the discouragement of new
  ideas and new ways of thinking that could lead to
  a lower standard of living.

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Command Economy

• A central authority determines what, how and for
  whom to produce.

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Examples of Command Economies

• Includes North Korea, Cuba, the former Soviet
  Union and China.

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Command Economy Advantages

• Advantages include the ability to drastically
  change direction in a relatively short period of
  time and many basic health and public services
  are available at no cost.

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Command Economy Disadvantages

• Disadvantages include consumer needs may not be
  met, hard work is not rewarded, the decision
  making bureaucracy delays decisions, little
  flexibility to deal with day to day problems, and
  individual incentive goes unrewarded

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Market Economy

• Producers and consumers determine what, how and
  for whom to produce. Consumers dollar acts like
  a vote ensuring that producers continue to bring
  to market the goods and services that consumers
  want to buy.

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Examples of Market Economies

• Examples include US, Canada, South Korea, Japan,
  and parts of western Europe.

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Market Economy Advantages
Advantages include ability to adjust to change,
high degree of individual freedom, small degree
of government involvement, a variety of goods and
services are created, and a high degree of
consumer satisfaction.
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Market Economy Disadvantages

• Disadvantages include inability of the market
• to meet every persons basic needs, high
• level of personal uncertainty, and the
• prospect of economic failure.

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