Name ______Date______
Economics 12 - Miss Cummings Chapter 2: Economic Systems & Decision Making
Characteristics of Basic Economic Systems
Traditional (example: Strong in India)
Decision-making:
Custom, religion, and tradition determine many economic decisions.
Stable and predictable because it sets forth economic roles for all members of the community. / Problems:
Unable to deal with change; discourages new ideas and ways of doing things; labor-intensive, subsistence level or production; no surpluses to trade and obtain development capital; lower standard of living;
Market – “Capitalist” or “free enterprise” (example: United States)
Decision-making:
Individual decision-making (freedom), consumer demand and producer supply combine to make basic economic decisions; private property and profit are vital; minimal government involvement (laissez-faire) is desirable.
-able to adjust to change gradually
-incredible variety of goods and services
-high degree of consumer satisfaction / Problems:
Inequality between income levels (classes); subject to unpredictable fluctuations of business activities; early capitalists tended to exploit workers to cut costs and maximize profits; some government regulation is usually needed for fairness.
-does not provide for people too young, too old, or too sick to work
-does not produce enough public goods such as defense, universal education or health care
-must guard against market failures
Command (example: Communist China)
Decision-making:
Central planning agency makes basic economic decisions of what to make, for whom, and for how much; government controls most of the resources and means of production.
-many basic education, public health, and other public services available at little or no cost.
-capable of dramatic change in a short time / Problems:
Lack of personal incentive to improve quality of life often leads to inadequate production and poor quality; strong centralization limits flexibility of decision-making.
-does not meet wants and needs of the consumers
-lacks incentives to get people to work
-new and different ideas discouraged; no individual freedom
Mixed (example: Socialism in Great Britain
Decision-making:
Government planning agency makes some of the economic decisions; market and private business make other decisions; government owns some of the means of production; extensive social welfare programs. / Problems:
The high cost of extensive government social welfare programs results in high taxes and reduces work incentives, initiative, and creativity.