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Economic Systems
Market
Command
Tribal
Traditional or Tribal Economies
Economic system in which the allocation of scarce resources
and other economic activities are based on ritual, habit, or
custom
 Advantages:
 Everyone knows the roles they play (hunter or gatherer or
shaman)
 Little uncertainty exists over WHAT to produce
 Little uncertainty exists over HOW to produce
 FOR WHOM is determined by the customs and traditions of
society
Disadvantages
 Disadvantages:
 Discourages new ideas
 Lack of progress leads to economic stagnation
 Lower standard of living than in other economic systems
Command Economies
 Examples: North Korea, Cuba, 1980s Soviet Bloc countries
 Economic system with a central authority that makes the
major economic decisions.
Advantages
 Change production/economic direction drastically
 USSR went from agrarian nation to industrialized within a
few short decades by emphasizing heavy industry
 Public service available at little or no cost
Disadvantages
 Disadvantages:
 Ignore basic wants/needs of the consumer
 No incentive to do anything other than fill quotas
 Requires a large decision-making bureaucracy
 Slows decision making
 Raises cost of production
 Lacks flexibility to deal with day-to-day problems
 No rewards for individual initiative
Market Economies
 Economic system in which supply, demand and the price
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system help people make decisions and allocate resources.
People making decisions in their own best interest
People can spend money on products they want most (dollar
vote on a product)
This tells producers which products people want, thus
helping them answer the question of WHAT to produce.
Businesses are free to find the best production method when
deciding HOW to produce.
Income that consumers earn and spend in the market
determines FOR WHOM to produce
Capitalism
 Private Ownership of Resources is known as
CAPITALISM
 Private citizens own the factors of production.
 Trading places is a great example of the Market or the
meeting place or mechanism that allows buyers and seller to
come together.
Advantages
 High degree of individual freedom
 Adjusts gradually to change over time
 Relatively small degree of government interference (Adam
Smith) laissez-faire
 Decision making is decentralized (Government does not
choose)
 Variety of goods and services
 High degree of consumer satisfaction
Disadvantages
 Economy does not provide for everyone
 Haves vs. Have Nots
 Old, Sick, Uneducated left out
 May not provide enough basic goods/ services
 Such as Education and Health Care
 High degree of uncertainty
 I.E. Jobs and salaries not guaranteed
Mixed
 Most countries today have a mixed economy
 A system that combine the elements of all three systems
Socialism
 Socialism – Mixed economic and political system.
Government owns and controls some, but not all of the basic
productive resources.
 Government provides some of the basic needs of the people
i.e. education and health care
Communism
 Communism – Extreme form of socialism, where all
property (and factors of productions) is collectively owned
and controlled by the state.
 Labor is organized for the common advantage of the
community, and everyone consumes according to their
needs.
 Pie-in-the-sky idea
 Communism usually evolve into Command Economies
The Spectrum of Mixed Economies
Ownership of Resources
All productive resources are government
owned and operated.
Basic productive resources are government
owned and operated; the rest are privately
owned and operated.
Productive resources are
owned and operated.
Allocation of Resources
Centralized planning directs all resources.
Government plans ways to allocate resources
in key industries.
Capital for production is
obtained through the lure of
profits in the market.
Roles of Government
Government makes all economic decisions.
Government directs the completion
of its economic plans in key industries.
Government may promote
competition and provide
public goods.