Economic Systems

Economic Systems

1. Traditional Economic Systems

   • PROS AND CONS
     • Cons
       • This type of economy is extremely dependent on the environment.. Every type of disturbance or change in the weather can lead to some sort of loss in crops, which will obviously result in those people losing a part or all of their income. Those people will end up with no profit for the hard work that they did.
       • The traditional economies are at risk of being overpowered by other economies that are larger and have more power. Traditional economies are much more small-scale, and they are at risk of losing their natural resources that they rely on to more larger economies on a constant basis.
     • Pros
       • This type of economy system is much more sustainable for its citizens. A traditional economy does not require the use of many of the modern conveniences that other types of economies do in order to produce their food and other products that they need. This makes it so that production is not as destructive to the environment. Also, most people only need to produce the right amount of what they need in order to take care of their families.
       • Almost everyone that is a member of the economy knows their role in production, and they also know what they are going to be able to receive.
   • EXAMPLE
     • Example: Tom & his son live in a foreign country. Where they live, there are no stores for them to purchase what they need. Instead, they have to hunt and gather what they need themselves.
   • DEFINITION
     • A traditional economic system is one that is reliant upon the customs, history, and beliefs that have been honored for a long time. Tradition is the main factor that is a guide for decisions. These decisions can include things such as production and distribution within a business. These traditional economies are dependent upon fishing, agriculture, hunting, gathering, or a combination of any one of those. This economic system chooses to barter instead of using any type of currency. A number of the traditional economies around the world are operated in emerging markets and developing countries. These countries can often include Africa, Asia, Latin America, and the Middle East.

2. Mixed Economic Systems

   • DEFINITION
     • A mixed economy is a system that is a combination of characteristics of market, command and traditional economy systems.
   • PROS & CONS
     • PROS
       • It rewards the most efficient producers with the highest profit.
       • It automatically allocates capital to the most innovative and efficient producers.
     • CONS
       • If there is too much freedom in the market, there can be less competitive businesses without any support from the government.
       • Businesses have the ability to lobby the government for more subsidies and tax breaks.
   • EXAMPLE
     • The United States has both private and government/state-owned entities. The government will sometimes get involved to help the economy. One government assistance in the United States is welfare. There are many types welfare, including Healthcare

3. Command Economic Systems

   • DEFINITION
     • In a command economy, a central government makes all of the decisions for the economy. The government or a collective owns the land and the means of production.
   • PROS & CONS
     • CONS
       • Quick mobilization can lead to the economy overlooking other needs of the country.
       • Can produce too much of one thing and not enough of others.
     • PROS
       • Economies can quickly mobilize the resources in an economy.
       • Command economies can completely transform societies to fit the vision of the government.
   • EXAMPLE
     • After WW2, the Korean president created the world's most-centrally planned economy. This created shortages, mass starvation, and malnutrition.

4. Market Economic Systems

   • DEFINITION
     • A market economy is an economic system in which its decisions for the economy and the pricing of goods and services are only guided by the aggregate interactions of the citizens and businesses of a given country. With this economic system, there is not as much intervention from the government or central planning. If you are in a market economy, you are living by the assumption that things like supply and demand are the best ways to determine aggregate well-being.
   • PROS & CONS
     • PROS
       • This economic system makes sure that the most demanded goods and services are made.
       • The most productive companies will earn more than companies that are less productive.
     • CONS
       • There is no system in place to help companies that are at an extreme disadvantage the competition.
       • Human Resources of this economy may not be optimized
   • EXAMPLE
     • Prices are set by the forces of supply and demand. If you product has more demand than supply, you will have to charge a higher price.

5. Economic System of the United States

   • From what I have seen and heard, the United States has a mixed economy. Our country works according to an economic system that portrays characteristics of both socialism and capitalism.

6. Importance of an Economic System

   • Each of these economic systems allocate resources for exchange, production, distribution, and consumption. Economic systems are the decision making structures of each nation's economy. These systems are how each nation is able to handle problems of economics such as scarcity.