The traditional economic system is when the economic decisions are based on tradition of the community or family. In this type of economy property and methods of making products are past down from generation to generation. Traditional economic systems are usually found in less developed countries; and countries with a lot of subsistence agriculture. Because they do not use many technological advancements economic growth is usually pretty low.
Examples of the Traditional Economic System
Amish
Inuit
Eskimos
Bangladesh
Burma
India (under the caste system)
Afghanistan
The traditional system is found in less developed areas of eastern Asia, South America and around half of Africa's 50 countries still use traditional systems today. Based on a World Bank estimate there are 400 million people who still use traditional systems today.
Advantages:
Jobs are passed down from generation to generation so people start their craft at a young age
Strong cultural identity
Allows for diversity
Allocative efficiency (only produce what they will use or what they need)
Disadvantages:
Slow economic growth
Bartering can lead to difficulty in trading
Methods are usually outdated and not very efficient
Very little social movement up or down classes
Usually lower standards of living
Less incentives for entrepreneurs
Goods and Services Produced
3 of the 5 fundamental questions:
1. What types of goods and services are produced?
2. How are the goods and services produced?
3. Who are the goods and services produced for?
1. It produces what it always has (from its tradition and history)- necessities, handicrafts.
2. They are often produced by hand or with simple machines (a lack of advanced technology and accumulation of capital goods).
3. They are often produced for families units and villages.
Economics In The News
In the article FDI is more powerful weapon for traditional economy Dr. Badar Alam Iqbal explains how the FDI or Foreign Direct Investment can help an economy like China go from traditional to a more modern economic system. The inflow of investment from the FDI sparks an economic boom that pulls economy out of the traditional system faster then before.
Traditional System
The traditional economic system is when the economic decisions are based on tradition of the community or family. In this type of economy property and methods of making products are past down from generation to generation. Traditional economic systems are usually found in less developed countries; and countries with a lot of subsistence agriculture. Because they do not use many technological advancements economic growth is usually pretty low.
Examples of the Traditional Economic System
- Amish
- Inuit
- Eskimos
- Bangladesh
- Burma
- India (under the caste system)
- Afghanistan
The traditional system is found in less developed areas of eastern Asia, South America and around half of Africa's 50 countries still use traditional systems today. Based on a World Bank estimate there are 400 million people who still use traditional systems today.Advantages:
Disadvantages:
Goods and Services Produced
3 of the 5 fundamental questions:
1. What types of goods and services are produced?
2. How are the goods and services produced?
3. Who are the goods and services produced for?
1. It produces what it always has (from its tradition and history)- necessities, handicrafts.
2. They are often produced by hand or with simple machines (a lack of advanced technology and accumulation of capital goods).
3. They are often produced for families units and villages.
Economics In The News
In the article FDI is more powerful weapon for traditional economy Dr. Badar Alam Iqbal explains how the FDI or Foreign Direct Investment can help an economy like China go from traditional to a more modern economic system. The inflow of investment from the FDI sparks an economic boom that pulls economy out of the traditional system faster then before.Sources
http://www.investorwords.com/6709/traditional_economy.html
http://www.w-train.com/econ/handouts/gp_8/pd8_traditional.htm