ANDAYA, ROZZEL DENNIZE D.

February 5, 2018
ECON 1N / SEC. 12 / MTH / 6:00 - 7:30 PM

ASSIGNMENT:
A. Describe the following economic systems and give five examples of countries that uses the system.

1. Traditional Economic System

It focuses exclusively on goods and services that are directly related to its beliefs, customs, and
traditions. It relies heavily on individuals and doesn’t usually show a significant degree of specialization
and division of labor. In other words, traditional economic systems are the most basic and ancient type of
economies.
Large parts of the world still qualify as traditional economies. Especially rural areas of second- or
third-world countries, where most economic activity revolves around farming and other traditional
activities. These economies often suffer from a lack of resources. Either because those resources don’t
naturally occur in the region or because access to them is highly restricted by other, more powerful
economies. There are no pure traditional economy in the World now. However, countries have small-
scale traditional industries co-existing with modern industries, then most underdeveloped and developing
countries fall in this category. (Source: https://quickonomics.com/four-types-economic-systems/)
These countries include:
 America. America had traditional economies before the immigration of Europeans beginning in
1492. Nomadic Native American economies had advantages, like stronger immune systems. Their
small communities protected them from smallpox and other imported diseases for a while.
 Haiti. Two-thirds of Haiti's population relies on subsistence farming for their livelihood. Their
reliance on wood as a primary source of fuel has stripped the forests of trees. That makes them
vulnerable to natural disasters, such as the earthquake that struck Haiti in 2010. Some economists
also point to Haiti's tradition of voodoo as another reason for its poverty.
 Indigenous tribes in the Arctic, North America, and eastern Russia have traditional economies.
They rely on fishing and hunting of caribou for their existence. For example, the Saami people of
Scandinavia manage reindeer herds. A tribe member's relationship to managing the herd defines
his or her economic role. That includes his or her legal status, culture and state policies toward
the individual. (Source: https://www.thebalance.com/traditional-economy-definition-examples-
pros-cons-3305587)

2. Command Economic System

A command economic system is characterized by a dominant centralized power (usually the
government) that controls a large part of all economic activity. This type of economy is most commonly
found in communist countries. It is sometimes also referred to as a planned economic system, because
most production decisions are made by the government (i.e. planned) and there is no free market at play.
Economies that have access to large amounts of valuable resources are especially prone to
establish a command economic system. In those cases the government steps in to regulate the resources
and most processes surrounding them. In practice, the centralized control aspect usually only covers the
most valuable resources within the economy (e.g. oil, gold). Other parts, such as agriculture are often left
to be regulated by the general population.
 A command economic system can work well in theory, as long as the government uses its power
in the best interest of society. However, this is unfortunately not always the case. In addition to that,
command economies are less flexible than the other systems and react slower to changes, because of
their centralized nature. (Source: https://quickonomics.com/four-types-economic-systems/)
These countries include:

 China - After World War II, Mao Tse Tung created a society ruled by Communism. He enforced a
strictly planned economy. The current leaders are moving toward a market-based system. They
continue to create five-year plans to outline economic goals and objectives.
 Cuba - Fidel Castro's 1959 revolution installed Communism and a planned economy. The Soviet
Union subsidized Cuba’s economy until 1990. The government is slowly incorporating market
reforms to spur growth.
 Iran - The government controls 60 percent of the economy through state-owned businesses. It
uses price controls and subsidies to regulate the market. This created recessions, which it has
ignored. Instead, it devoted resources to expanding its nuclear capability. The United Nations
imposed sanctions, worsening its recessions. The economy improved once the nuclear trade
deal ended sanctions in 2015.
 Libya - In 1969, Muammar Gaddafi created a command economy reliant upon oil revenues. Most
Libyans work for the government. Gaddafi had been instituting reforms to create a market-based
economy. But his 2011 assassination halted these plans.
 North Korea - After World War II, President Kim Il-sung created the world's most centrally-
planned economy. It created food shortages, malnutrition and several bouts of mass starvation.
Most state resources go into building up the military. (Source:
https://www.thebalance.com/command-economy-characteristics-pros-cons-and-examples-
3305585)

3. Market Economic System

A market economic system relies on free markets and does not allow any kind of government
involvement in the economy. In this system, the government does not control any resources or other
relevant economic segments. Instead, the entire system is regulated by the people and the law of supply
and demand.
The market economic system is a theoretical concept. That means, there is no real example of a
pure market economy in the real world. The reason for this is that all economies we know of show
characteristics of at least some kind of government interference. For example, many governments pass
laws to regulate monopolies or to ensure fair trade and so on.
In theory, a market economic system enables an economy to experience a high amount of growth.
Arguably the highest among all four economic systems. In addition to that, it also ensures that the
economy and the government remain separate. At the same time however, a market economy allows
private actors to become extremely powerful, especially those who own valuable resources. Thus, the
distribution of wealth and other positive aspects of the high economic output may not always be beneficial
for society as a whole. (Source: https://quickonomics.com/four-types-economic-systems/)
These countries include:
  Countries that have a market economy are Mexico, United States, United Kingdom, Germany,
and Canada. These countries have a market economy because the prices of goods and services
are set by supply and demand.
(Source: https://www.investopedia.com/ask/answers/040915/what-are-some-examples-free-
market-economies.asp)

4. Mixed Economic System

A mixed economic system refers to any kind of mixture of a market and a command economic
system. It is sometimes also referred to as a dual economy. Although there is no clear-cut definition of a
mixed economic system, in most cases the term is used to describe market economies with a strong
regulatory oversight and government control in specific areas (e.g. public goods and services).

Most western economies nowadays are considered mixed economies. Most industries in those
systems are privately owned whereas a small number of public utilities and services remain in government
control. Thus, neither the private nor the government sector alone can maintain the economy, both play
a critical part in the success of the system.

Mixed economies are widely considered an economic ideal nowadays. In theory, they are
supposed combine the advantages of both command and market economic systems. In practice however,
it’s not always that easy. The extent of government control varies greatly and some governments tend to
increase their power more than necessary. (Source: https://quickonomics.com/four-types-economic-
systems/)

These countries include:

 Countries with a mixed economy include Iceland, Sweden, France, the United Kingdom,
the United States, Russia and China. These countries have a mix of government spending and
free-market systems based on the share of government spending as a percentage of gross
domestic product. (Source: https://www.thebalance.com/mixed-economy-definition-pros-cons-
examples-3305594)

B. Explain how these economies solve the 3 economic values:

1. What goods and services should be produced and in what quantities?
2. How should these goods and services be produced
3. For whom should these goods and services be produced?

 Traditional Economic System

In a traditional economy, economic decisions are based on custom and historical precedent. For example,
in tribal cultures or in cultures characterized by a caste system, people in particular social strata or holding
certain positions often perform the same type of work as their parents and grandparents, regardless of
ability or potential. (Source: https://www.ukessays.com/essays/economics/types-of-economies-and-
how-they-attempt-to-solve-the-basic-economic-problem-economics-essay.php)
 1. What goods and services should be produced and in what quantities?
 It focuses exclusively on goods and services that are directly related to its beliefs, customs,
and traditions.
 These societies cover vast areas to find enough food to support them. They follow the
herds of animals that sustain them, migrating with the seasons. These nomadic hunter-
gatherers usually compete with other groups for scarce natural resources. There is little
need for trade since they all consume and produce the same things.
 In a traditional economy, everything is mostly based on what is popular, production
responds to what is in demand from the people. An example of this would be in the
prehistoric times where farmers grazed animals and produced food. Enough food would
be produced for the people living in the area
2. How should these goods and services be produced?
 Most traditional economies produce only what they need. There is rarely surplus or
leftovers. That makes it unnecessary to trade or create money.
 A farmer would produce the food for the people and the farmer would get something in
return.
3. For whom should these goods and services be produced?
 Traditional economies center on a family or tribe. They use traditions gained from the
elders' experiences to guide day-to-day life and economic decisions.
 Enough food would be produced for the people living in the area

 Command Economic System

In a command economy, governmental planning groups make the basic economic decisions. They
determine such things as which goods and services to produce, their prices, and wage rates. (Source:
https://www.ukessays.com/essays/economics/types-of-economies-and-how-they-attempt-to-solve-the-
basic-economic-problem-economics-essay.php)
1. What goods and services should be produced and in what quantities?
 Determined by government preferences.
2. How should these goods and services be produced?
 Determined by government and their employees.
3. For whom should these goods and services be produced?
 Determined by government preferences.
 In a command economy, the government decides what gets produced, at what quantity
and what price.
 The state-owned as well as the private enterprises in such economies receive guidance and
directives from the government regarding economic problems including what to produce,
how to produce and for whom to produce

 Market Economic System

In a market economy, economic decisions are guided by the changes in prices that occur as individual
buyers and sellers interact in the market place. As such, this type of economy is often referred to as a
price system. Other names for the market system are free enterprise, capitalism, and laissez-faire.
(Source: https://www.ukessays.com/essays/economics/types-of-economies-and-how-they-attempt-to-
solve-the-basic-economic-problem-economics-essay.php)
 1. What goods and services should be produced and in what quantities?
 Determined by consumer’s preferences.
 In a market economy, what to produce is determined by what the people demand. For
example, in a city with no roads, cars would not need to be produced or traded due to the
fact that there is no demand for them.
2. How should these goods and services be produced?
 Determined by producers seeking profits.
 In terms of how to produce, a market economy is the complete opposite of a planned
economy where the government decides what to produce and in what quantities to
produce, a market economy allows for much more freedom.
3. For whom should these goods and services be produced?
 Determined by purchasing power.
 Everything in a market economy is produced for people in exchange in goods or services. An
example would be an individual purchasing an automobile due to their need of
transportation; money would need to be exchanged for the product.

 Mixed Economic System

There are no pure command or market economies. To some degree, all modern economies exhibit
characteristics of both systems and are, therefore, often referred to as mixed economies. (Source:
https://www.ukessays.com/essays/economics/types-of-economies-and-how-they-attempt-to-solve-the-
basic-economic-problem-economics-essay.php)
1. What goods and services should be produced and in what quantities?
 Determined partly by consumer preferences and partly by government.
 The problem of what to produce is solved through price mechanism and planning. The
market price controls the private sector and in the public sector the planning agency decides
what to produce and administers the prices.
2. How should these goods and services be produced?
 Determined partly by producers seeking profits and partly by government.
 The profit motive decides how to produce in the private sector. In the public sector the
decision is made on the basis of the welfare motive.
 Some of the goods that are produced are distributed in the market on the basis of price
mechanism and some are distributed by the government through the public distribution
system.
3. For whom should these goods and services be produced?
 Determined partly by purchasing power and partly by government preference.