Fundamentals of Economics
Productive resources are limited and allocated in a variety of different ways. An efficient way to allocate productive resources is through markets.
4. Different economic systems (traditional, market, command, mixed) use different methods to allocate limited resources.
Economic systems are developed to satisfy the wants of their people and to allocate limited resources by answering three economic questions: What will be produced? How it will be produced? To whom will it be distributed?
The characteristics of traditional, market, command and mixed economies differ with regard to private property, freedom of enterprise, competition and consumer choice, and the role of government.
The traditional economic system is based on custom. The allocation of resources changes little over generations. Today, traditional economic systems are found in small hunting or agricultural-based societies.
In the market economic system, the allocation of resources is determined by consumer spending. If consumers want a certain type of clothing, resources will be allocated to meet the demand. The characteristics of market economies are private property, freedom of enterprise, competition and consumer choice, and the limited role of government.
In the command economic system, the allocation of resources is determined by a small group of planners. They decide how the key economic questions are answered. Centrally planned economies are common in communist countries. The government owns the means of production.
No pure market or command economic systems exist. Generally, they are mixed-economic systems that either lean toward a market or command system.
Expectations for Learning
Compare the way each of the economic systems allocates scarce resources.