Microeconomics,, 16th Canadian Edition

(Sean Pound) #1

Finally, production is allocated among the members according to long-
established traditions.

Such a system works best in an unchanging environment. Under such
static conditions, a system that does not continually require people to
make choices can prove effective in meeting economic and social needs.

Traditional systems were common in earlier times. The feudal system,
under which most people in medieval Europe lived, was a largely
traditional society. Peasants, artisans, and most others living in villages
inherited their positions in that society. They also usually inherited their
specific jobs, which they handled in traditional ways.

Command Economies

In command economies, economic behaviour is determined by some
central authority, usually the government, or perhaps a dictator, which
makes most of the necessary decisions on what to produce, how to
produce it, and who gets to consume which products and in what
quantities. Such economies are characterized by the centralization of
decision making. Because centralized decision makers usually create
elaborate and complex plans for the behaviour that they want to impose,
the terms command economy and centrally planned economy are usually
used synonymously.

The sheer quantity of data required for the central planning of an entire
modern economy is enormous, and the task of analyzing it to produce a

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