traditional economies
Traditional societies use ritual, habit, or custom to answer the basic questions of what, how, and for who to produce.
Characteristics
Characteristics
- In a society with a traditional economy, the use of scarce resources - and nearly all other economic activity - stems from ritual, habit, or custom.
- Habit and custom also dictate most social behavior. Individuals are generally not free to make decisions based on what they want or would like to have.
- Instead, their roles are defined by the customs of their elders and ancestors.
- For generations, Inuit parents taught their children how to survive in a harsh climate , make tools, fish, and hunt.
- The main advantage of a traditional economy is that everyone knows which role to play.
- The main drawback of a traditional economy is that it tends to discourage new ideas and new ways of doing things.
- The strict roles in a traditional society have the effect of punishing people who act differently or break the rules.
- The lack of progress leads to economic stagnation and a lower standard of living than in other economic systems.
command economies
Command economies rely on a central authority to make most of the economic decisions.
In a command economy, a central authority makes the major decisions about what, how, and for whom to produce.
Characteristics
In a command economy, a central authority makes the major decisions about what, how, and for whom to produce.
Characteristics
- In a pure command economy, the government makes the major economic decisions.
- Most command economies severely limit private property rights.
- Individual freedom also is limited
- Finally, government officials tend to favor themselves when making economic decisions.
- Because they tend to be unproductive, few pure command economies exist today.
- North Korea and Cuba are modern examples.
- The main strength of a command system is that it can change direction drastically.
- Another advantage of command economies, especially those represented by the former Soviet Union, is that many health and publish services are available to everyone at little or no cost.
- Pure command economies have their disadvantages.
- One is that they ignore the basic wants and needs of consumers.
- A second disadvantage is that the system gives people thee incentive to fill their quotas instead of producing a good product.
- A third weakness is that a command economy requires a large decision making bureaucracy.
- Yet a fourth weakness is that the planning bureaucracy lacks the flexibility to deal with minor day to day problems.
- Finally, rewards for individual initiative are rare in a command economy.
market economies
In a market economy, consumers and businesses jointly answer the questions of what, how, and for whom to produce.
In a market economy, people make decisions in their own best interest.
In economic terms, a market is an arrangement that allows buyers and sellers to come together to exchange goods and services.
Characteristics
In a market economy, people make decisions in their own best interest.
In economic terms, a market is an arrangement that allows buyers and sellers to come together to exchange goods and services.
Characteristics
- A market economy is characterized by a great deal of freedom.
- Market economies also feature the private ownership of resources.
- A market economy is often described as being based on capitalism - an economic system where private citizens own the factors of production.
- Many of the most prosperous economies in the world, such as the United States, Japan, South Korea, Singapore, Australia, Great Britain, and parts of Western Europe, are based on markets and capitalism.
- The first advantage of a market economy is its high degree of individual freedom.
- The second advantage of a market economy is that it adjusts gradually to change over time.
- A third advantage is the relatively small degree of government interference.
- A fourth advantage is that decision making is decentralized.
- A fifth advantage of the market economy is the variety of goods and services.
- A sixth advantage is the high degree of consumer satisfaction.
- The market economy does not provide for everyone.
- A market economy also may not provide enough of some basic goods and services.
- Finally, a market economy has a high degree of uncertainty.
mixed economies
Most economies in the world today feature some mix of traditional, command, and market economies.
Most countries have mixed economies - systems that combine elements of all three types.
Socialism is a mixed economic and political system in which the government owns and controls some, but not all, of the basic productive resources. In socialistic countries, the government also provides some of the basic needs of its people, such as education and health care.
An extreme form of socialism is communism - a political and economic system where all property is collectively - not privately - owned. In a communist system, labor is organized for the common advantage of the community, and everyone consumes according to their needs.
Characteristics
Most countries have mixed economies - systems that combine elements of all three types.
Socialism is a mixed economic and political system in which the government owns and controls some, but not all, of the basic productive resources. In socialistic countries, the government also provides some of the basic needs of its people, such as education and health care.
An extreme form of socialism is communism - a political and economic system where all property is collectively - not privately - owned. In a communist system, labor is organized for the common advantage of the community, and everyone consumes according to their needs.
Characteristics
- The type of political system in a mixed economy is less important than the way basic economic decisions are made.
- The more socialistic a country is, the more it will make major economic decisions, often with the claim that this is done for the betterment of the people.
- There is a wide range of mixed economies.
- While tradition has a strong influence in rural areas, the government makes many of the major economic decisions and owns many of the factors of production.
- One advantage of a mixed economy is that it provides assistance for some people who might otherwise be left out.
- While mixed economies tend to provide more services, the costs for these benefits can mean higher costs for citizens overall.
- Because socialism has proved to be so inefficient, many socialistic countries today allow more capitalistic development.