A traditional economy is a system where traditions, customs, and beliefs shape the goods and products the society creates. Countries or communities that use this type of economic system are often rural and farm-based. Also known as a subsistence economy, a traditional economy is defined by bartering and trading. Little surplus is produced, and if any extra goods are made, they are typically given to a ruling authority or landowner. Hunting, gathering, and farming are the main tasks for workers in a traditional economy. There are big parts of the world's population that still work in traditional economies, primarily in third-world countries with larger indigenous populations. Underdeveloped areas of South America, Africa, and Asia still rely on this type of economy for survival. The custom of sharing and collaborating for the good of the society defines a traditional economy. Basic necessities are sometimes traded, but goods are rarely bought and sold. For instance, fishermen only need their fishing gear, while farmers only need their land and farming equipment. In many cases, a traditional economy may have no official currency whatsoever. The Inuit (Eskimos) of northern Canada provides an example of a traditional economy. For thousands of years, Inuit parents have been teaching their children the survival skills that they need to survive in the severe climate of the Arctic Circle. The children are taught how to fish, hunt, and make traditional tools. Once learned, these skills are passed down to the next generation.
Traditional economies offer advantages to the individuals who live in a traditional economy. For example, every member of the society knows exactly what they are to do and what role they play. Each person has a function in society. Social bonds are thus deepened, people typically feel more unified with the society, and a sense of worth often increases. Also, because goods are only made for survival, the country's natural resources may not as compromised or overused as in other types of economies. Life is generally stable and predictable. There are also many disadvantages to this type of society. These societies are often very slow to change and when new technologies are introduced, these ideas and techniques are discouraged. Individuals tend to remain in set roles in a traditional economy, and their financial well-being rarely increases. Indeed, most of those living in this type of economy find themselves stuck in poverty for their entire lives.
In a market economy, consumers (buyers) and businesses (sellers) decide what they want to produce and purchase in the marketplace without any influence or interference from a government or other outside body. A market economy takes a laissez-faire attitude that the government should leave business and the economy alone. Adam Smith stated that an invisible hand guided the economy and he believed that the best interests of a society are served when businesses compete with each other to achieve their own personal interests. Decisions are made by “voting with their dollars.” Businesses decide what to produce based the demand they see for their products, or how much of their product they are able to sell and the prices they get for the goods and services they are selling. If consumers respond well to a product and spend their money to buy it businesses will continue to produce and sell that product. If consumers respond negatively to a product, then businesses won’t continue to make and sell that product. The belief in private property and privately-owned businesses are extremely important in the market economy.
Market economies offer advantages to the individuals who live in a market economy. For example, one major advantage is that market economies can adjust to change easily. If there is a demand for one thing, companies have the ability to easily change what they produce. Self-interest in market economies is also encouraged. People have the ability to make as much money as they can and do what is in their best interest. Another positive to market economies is that the government tries to stay out of the way of businesses. Although the government sets certain standards businesses must follow, for the most part businesses can do as they please, allowing them to produce what they want, how they want, giving them a high degree of individual freedom. Another advantage to the market economy is that there is a great variety of goods and services for consumers. If there is a demand for a good or service, the demand will almost always be met in a market economy. Although there are a lot of positives to market economies, there are also many negatives that go along with it too. One major problem with this type of economy is that it doesn’t always provide the basic needs to everyone in the society. The weak, sick, disabled, and old sometimes have trouble providing for themselves and often slip into poverty. Another disadvantage to this type of economy is that there is uncertainty in the business world. One company could easily be forced out of business causing all of its employees to become unemployed and lose their means of income. The final disadvantage is that occasionally there are market failures. This can cause some companies to become way to powerful and become a monopoly. If the government doesn’t step in, the monopoly can take advantage of the consumers and charge ridiculously high prices.
In a command economy, also known as a planned economy, the government largely determines what is produced and how much of that product is produced. It directs businesses to make and deliver goods and services in amounts determined by the government. In command economies, the government owns the means of production. The government decides what will be made and produced according to a plan based upon what the state calculates to be people's need and desire for various goods and services. The government also plays an important role in determining how goods and services are distributed, that is, in deciding who gets how much of what. Often, the price of the good produced is also regulated by the government. The government tries to eliminate all private property and distribute its goods and services equally.
Command economies have many advantages to the individuals who live in a command economy. One advantage is that equality is focused on. The government tries to eliminate all private property and distribute its goods and services equally. If done correctly no one is in poverty and no one is wealthier than another. Social services are also emphasized in this type of economy. The government will provide equal health care, education opportunities, and make sure all people are fed. A third advantage to this type of economy is that it is capable of rapid change for major problems. The government owns the companies, so if production needs need to be shifted into a different area, the government is capable of doing it rather quickly. A final major advantage of command economies is that they are very stable. Command economies will never have sudden depressions. Command economies also have many disadvantages. In command economies there is very little freedom. The individual usually doesn’t have the opportunity to decide what they want to do for a career, and they have no control over the goods they receive. Another major problem is that there is little reason for innovations, hard work, or quality of the work. Since no one makes more money than everyone else, the people feel like there is no reason to work hard. A third disadvantage is that there is little focus on consumer wants. Finally, when it comes to minor day-to-day changes, the government has a hard time dealing with them.
A mixed economy is one in which there exists a mixture of free enterprise and government control. In general, private businesses and market forces prevail in mixed economies. The government does not direct the private sector to produce certain goods and services in certain quantities at certain times. In a typical mixed economy, the government may run such things as the postal service, rail lines, libraries, and in some cases, the health care service. Even in industries which are not owned or run by the government, its influence is very noticeable in the form of taxes and regulations like wage controls (i.e. minimum wage). In a mixed economy economic activities are carried out by individuals as well as the government. The government and private businesses are required to function in a properly coordinated manner and the government engages itself in those activities that the private enterprises consider as unprofitable or beyond this reach.
Mixed economies have many advantages to the individuals who live in a mixed economy. Since mixed economy involves both government and private enterprises it has the advantage of taking the benefits of capitalist nature of private companies and socialist nature of government. Another advantage is there is less inequality of income because intent of government is to have a balanced economic growth of an economy. Also a mixed economy allows individuals to run their business and make profits but at the same time it places some responsibility on these companies by forcing them to contribute towards the welfare of society. A mixed economy is not without some disadvantages. The biggest disadvantage is that the line between the public and private sectors easily becomes blurred, or shifts one way or another from time to time. In the long run, mixed economies usually evolve in the direction of more government control and less individual freedom. Even most of those who favor a degree of government control would likely concede that there must be a line drawn somewhere, but it is very difficult for a society as a whole to know where that point is. A mixed economy, therefore, is an always changing process. The government has control of where resources are used in a mixed economy. During a free-market economy, resources will be given to services that best boost the economy, but a mixed economy gives the majority of resources to social welfare programs. While some people will see this as an advantage, it is a disadvantage for business owners, because they may not get enough resources to create an adequate product or profit. In a mixed economy business owners may experience a lot of paperwork, forms and bureaucracy to get licenses to legally operate. This is one of the disadvantages of a mixed economy that is that is can be hard for private businesses, because they often experience the most paperwork and hoops to jump through.