The Three Questions that Determine
a Societies Economic System
Because ALL economic resources are
scarce, every society must answer three
questions:
– What goods and services should
be produced?
• Guns or butter?
•?
– How should these goods and
services be produced?
• What combination of factor resources
should we use?
– Who consumes these goods and
services?
How will income be distributed?
TRADITIONAL SYSTEM
• A traditional system relies on habit,
custom or ritual to decide what to
produce, how to produce it and to
who to distribute it.
• Agricultural and hunting societies
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• There is little room for innovation or
change.
• They tend to lack modern conveniences
and have a low standard of living.
• Close knit communities with focus on the
family unit.
Traditional Economy
• Found in rural, underdeveloped countries–
–
–
–
–
Vanuatu
Pygmies of Congo
Eskimos & Indian tribes
Belarus
• Customs govern the
economic decisions that
are made
• Farming, hunting and
gathering are done the
same way as the
generation before
• Economic activities are
centered around the family
or ethnic unit
• Men and women are given
different economic roles
and tasks
• Advantages: people have
specific roles; security in
the way things are done
• Disadvantages: Technology
is not used; difficult to
improve
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