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Types of Economic Systems (Traditional economy (Advantages (Everyone knows…
Types of Economic Systems
Traditional economy
A traditional economy is a system that relies on customs, history and time-honored beliefs. Tradition guides economic decisions such as production and distribution.
Advantages
Everyone knows their contribution toward production
Members also understand what they are likely to receive
Members understand that it's what's kept the society together and functioning for generations
Disadvantages
Traditional economies are vulnerable to changes in nature, especially the weather.
When the harvest or hunting is poor, people starve.
Those societies often consume the natural resources traditional economies depend on or wage war
Command economy
A command economy is where a central government makes all economic decisions. The government or a collective owns the land and the means of production.
Advantages
Planned economies can quickly mobilize economic resources on a large scale
Command economies can wholly transform societies to conform to the government's vision.
Disadvantages
command economies mow down other societal needs
It often develop a shadow economy or black market.
It often produce too much of one thing and not enough of another.
It no longer measure or control demand.
Command economies discourage innovation
Market economy
A market economy is a system where the laws of supply and demand direct the production of goods and services.
Advantages
goods and services are produced in the most efficient way possible.
it rewards innovation.
the most successful businesses invest in other top-notch companies.
it ensures the most desired goods and services are produced
Disadvantages
it has no system to care for those who are at an inherent competitive disadvantage.
the caretakers of those people are also at a disadvantage
the society reflects the values of the winners in the market economy.
Mixed economy
A mixed economy is a system that combines characteristics of market, command and traditional economies
Advantages
it distributes goods and services to where they are most needed
t rewards the most efficient producers with the highest profit.
it encourages innovation to meet customer needs more creatively, cheaply or efficiently
it automatically allocates capital to the most innovative and efficient producers.
Disadvantages
if the market has too much freedom, it can leave the less competitive members of society without any government support.