Economic Systems
‘These attempt to answer the basic fundamental issues of what, how and for whom to produce.
‘There are two extreme views of these systems; Free Economies and Controlled Economies. All
economies are mixed; they only differ in the degree of government intervention. For example,
Cuba has more government intervention than the US.
1, Traditional Economies
Ownership of resources is allocated by inheritance and there is a strong social
network. In this societal structure, every member has a purpose and goods will only
be produced if they will be consumed. Resource allocation to production depends on
their traditions.
Characteristics:
+ Usually based on agriculture.
+ Benefits from production depends on birthright and social ranking.
Barter trade for exchanging goods.
Young men and women follow what their parents did.
Production techniques are customary patterns.
‘The 3 main economic questions are answered by: “do what we normally do”.
Some remote villages in the Canadian Arctic and Amerindian tribes in South
America.
Advantages:
+ There is no over or under-production.
+ Nounemployment.
* Community involvement in all areas of production.
Disadvantages:
‘+ Limitations of barter.
+ Slow rate of inventions and innovations.
+ Only subsistence farming for satisfaction of the community that will limit
economies of scale.
+ The goods produced are for the community or village and the community's
resources are not used to produce for individual demand.
2, Free Economies, Market Economies or Laissez faire Economies
(Capitalism)
Characteristics:
* Private individuals own and control resources.
+ No government intervention.
+ Decentralised decision-making to firms and consumers,
+ Resources are allocated to production based on the Price Mechanism of demand
and supply.
+ Firms are motivated by profit.
+ Workers are motivated by wages.
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