Three Economic Systems
Generally speaking, there are three different types of economic systems: Traditional, Command, and Market. Our study of economics will primarily be about Market Economies, although it is useful to know what the other two look like. Every economic system must answer the three economic questions:
- WHAT to produce?
- HOW to produce?
- FOR WHOM to produce?
Traditional Economic System:
A traditional economic system is based on long-standing customs and habits, which also dictate most individual behavior. Many indigenous peoples follow have traditional economies. The man at left is part of a traditional economy in the Middle East. Typically, workers in traditional economies are primarily engaged with agriculture. The traditional economy is advantageous because there is little uncertainty over the three economic questions. However, people are usually punished for trying to act outside of the established social norms, and as such progress is usually hampered. Due to this, living standards (compared with the Western world) are often low.
A traditional economic system is based on long-standing customs and habits, which also dictate most individual behavior. Many indigenous peoples follow have traditional economies. The man at left is part of a traditional economy in the Middle East. Typically, workers in traditional economies are primarily engaged with agriculture. The traditional economy is advantageous because there is little uncertainty over the three economic questions. However, people are usually punished for trying to act outside of the established social norms, and as such progress is usually hampered. Due to this, living standards (compared with the Western world) are often low.
Command Economies:
In a command economy, the economic questions are all answered by a central authority (who is considered to be "in command"). As in a traditional economy, people usually do not have much say over how those questions are answered. Command economies are relatively rare nowadays (think North Korea), but in the heyday of the old USSR, many of the Communist satellite nations controlled by Moscow were command economies. Advantages of a command economy include the ability to quickly shift economic priorities on a massive scale (think of how fast the Soviets ramped up military production when the Germans invaded in 1941). Also, command economies typically provide health benefits and public services to their people. Cuba has one of the best doctor-patient ratios, and yet they've been a command economy since 1959. The disadvantages, of course, are obvious: people can't choose their own answers to the three economic questions, and so some people's wants get ignored. Production tends to be inefficient due to a lack of competition, and the availability of consumer goods is often quite limited. Only the most corrupt Communists could get a new Cadillac during the 1970s.
In a command economy, the economic questions are all answered by a central authority (who is considered to be "in command"). As in a traditional economy, people usually do not have much say over how those questions are answered. Command economies are relatively rare nowadays (think North Korea), but in the heyday of the old USSR, many of the Communist satellite nations controlled by Moscow were command economies. Advantages of a command economy include the ability to quickly shift economic priorities on a massive scale (think of how fast the Soviets ramped up military production when the Germans invaded in 1941). Also, command economies typically provide health benefits and public services to their people. Cuba has one of the best doctor-patient ratios, and yet they've been a command economy since 1959. The disadvantages, of course, are obvious: people can't choose their own answers to the three economic questions, and so some people's wants get ignored. Production tends to be inefficient due to a lack of competition, and the availability of consumer goods is often quite limited. Only the most corrupt Communists could get a new Cadillac during the 1970s.
Market Economy:
A market economy is one where individuals answer their own individual economic questions. If you want to be a plumber, you can become a plumber, regardless of whether or not you come from a long family of plumbers. The United States is traditionally seen as having a market economy. Market economies are often referred to as "free market capitalism." There are many advantages, such as the ability for the economy to quickly adapt to economic changes, as well as the large amount of individual freedom and limited amount of government interference in the economy. There is also a wide variety of goods and services available (every supermarket in America has like four different kinds of peanut butter, minimum) and most consumers can get what they need. However, some people are unable to survive in a pure market economy, so government sometimes has to step in with public assistance (think food stamps, welfare, or unemployment benefits). Critics of free market capitalism assert that someone is always getting trampled on in the course of producing a free market economy. Proponents argue that there are always winners and losers. It's one of the biggest themes in American politics today, actually.
A market economy is one where individuals answer their own individual economic questions. If you want to be a plumber, you can become a plumber, regardless of whether or not you come from a long family of plumbers. The United States is traditionally seen as having a market economy. Market economies are often referred to as "free market capitalism." There are many advantages, such as the ability for the economy to quickly adapt to economic changes, as well as the large amount of individual freedom and limited amount of government interference in the economy. There is also a wide variety of goods and services available (every supermarket in America has like four different kinds of peanut butter, minimum) and most consumers can get what they need. However, some people are unable to survive in a pure market economy, so government sometimes has to step in with public assistance (think food stamps, welfare, or unemployment benefits). Critics of free market capitalism assert that someone is always getting trampled on in the course of producing a free market economy. Proponents argue that there are always winners and losers. It's one of the biggest themes in American politics today, actually.