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Ch 2.1: Economic Systems

Ch 2.1: Economic Systems. Ojectives. Describe the characteristics of the traditional, command & market economies. Explain the advantages & disadvantages of the traditional, command & market economies. Section Key Terms. economy/ economic system traditional economy command economy

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Ch 2.1: Economic Systems

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  1. Ch 2.1: Economic Systems

  2. Ojectives • Describe the characteristics of the traditional, command & market economies. • Explain the advantages & disadvantages of the traditional, command & market economies.

  3. Section Key Terms • economy/ economic system • traditional economy • command economy • market economy

  4. Economic System • An organized way of providing for the wants & needs of a society’s people • Fall under 3 main types: • Traditional • Command • Market

  5. Traditional Economies

  6. Definition: Allocation of scarce resources & other economic activity is the result of ritual, habit, or custom • Examples: many indigenous peoples around the world (Mbuti, Aborigines, Inuit)

  7. Advantages: Everyone knows which role to play/ little uncertainty exists over WHAT, HOW, and FOR WHOM to produce • Disadvantages: 1. Tends to discourage new ideas & new ways of doing things 2. Lack of progress leads to a lower standard of living

  8. Command Economies

  9. Definition: A central authority (government) makes most of the major economic decisions • Examples: North Korea, Cuba (currently); China, Soviet Union (past)

  10. Advantages • Dramatic change can occur in a short period of time • Many health & public services available to everyone at little or no cost

  11. Disadvantages • Does not meet the wants of consumers • Does not give people the incentive to work hard • Requires large decision-making bureaucracy • Little flexibility, can’t deal with small, day-to-day changes • New & different ideas discouraged, no room for individuality

  12. Market Economies

  13. Definition: People & firms act in their own best interests to answer the WHAT, HOW, and FOR WHOM questions (free enterprise) • Examples: United States, Canada, Japan, South Korea, Great Britain, most of Western Europe

  14. Advantages • Can adjust to change over time • High degree of individual freedom • Small degree of government interference • Decision-making is not concentrated in the hands of a few • Incredible variety of goods & services available to consumers • High degree of consumer satisfaction

  15. Disadvantages • Does not provide for the basic needs for everyone in society (young, old, disabled, etc) • Does not provide enough public services that people value highly • Workers & businesses face uncertainty resulting from competition & change • Must guard against market failure

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