Educators’ Understanding of ICT within teacher education program 85 

Traditional Economy

Free market/Capitalist Economy Planned/Socialist/Command Economy Mixed Economy

(a) TRADITIONAL ECONOMY

The traditional economy was fundamentally based on traditions and customs. Here, barter was the main stay of the economy and every economic player existed on a subsistence level. The fundamental economics question of what to produce. How to produce and for whom to produce were answered by customs and traditions. Economic resources were owned or controlled by a Sovereign or Fenda-lord.

The following are the advantages and disadvantages of traditional economy.

Advantages:

The traditional economy has its own advantages. Some of them are:

1. Every member of the society is a major playmaker. They participate fully in economic activities.

Every member knows what they are to do.

2. There exists a strong social network among every member of the society.

3. Positions and hierarchy are already established within the society.

4. Traditional and customs provide answer to basic economic questions of every society.

5. Life and business activities are stable, decent, predictable and continuous.

Disadvantages:

1. There is technological problem as it does not take technological change.

2. There is little or no promotion of scientific and intellectual development.

3. There is often inefficient and inadequate provision of goods and services.

4. Since the society is primitive, it is often very slow to change.

5. There is little or no room for skill development. There is also inefficient use of skill in relation to the factors of production.

(b) FREE MARKET/CAPITALISM

In a free market economy (i.e. a capitalist economy) the government lays little role in economic activities. There is high freedom for individuals to own factors of production. The private sector provides answers to the fundamental economic questions. There is consumer sovereignty and the maximization of profit is the main goal of owners of factors of production. Price is determined mainly by the workings of the forces of demand and supply. In this economic system entrepreneurs adopt only the economically most efficient methods of production and goods will be produce where labour is the cheapest.

Advantages:

1. Producers and consumers of goods and services have choices. Producers are free to produce what the consumers demand and the consumers are also free to spend their money as they see it fit.

2. The economic decision of what to produce is made determines by the forces of demand and supply. Hence, there is greater participation in the decision-making process.

3. Prices of goods and services are determined by the price mechanism (workings of forces of demand and supply).

4. The government does not interfere in economic activities in any way.

5. Resources are efficiently used, since they are allocated to production areas that are profitable.

6. There is high level of competition among business firms. This improves quality o f goods and services produced lower prices and encourage the use of technology and innovation.

Disadvantages:

1. It limits competition among firms. A few giant firms may dominate an industry. These firms may charge high prices and make large profits. Consumers face oppression and cheating. These firms, rather than seeking to satisfy or meet the wishes of consumers may result to advertisement as way of persuading consumers.

2. Absence of competition and abnormal profit may lead to inefficiency of firms.

3. The free-market economic system brings about concentration of wealth in the hands of few individuals. Power, property and resources may be unequally distributed. Those who have power, property and resources will gain at the expense of those without.

4. The activities of some firms have for reaching effects. For example, production activities of some firms may lead to environmental pollution.

5. A free-market economy may bring about macroeconomic instability. It may lead to economic recession and inflation.

(c) PLANNED/SOCIALIST/COMMAND ECONOMY

A planned economy is an economic system in which production and investment decisions are made by central authority, usually by a public body such as a government agency. Command economy as it is also known, is usually associated with a socialist or communist economic system, where land and capital are collectively owned. In a centrally planned economy, planners would decide on the allocation of resources between current consumption and investment for the future. They would also take into consideration what would be produced and direct lower-level enterprises and ministries to produce those goods in accordance with democratically-determined national and social objectives. Besides, at the microeconomic level, planners decide on output of each on industry and firm, the methods and techniques that will be used in production as well as labour and other resources required by each industry and firm. Additionally, the planners decide on the distribution of output between consumers.

This decision is based on the aims of the government. The government may distribute goods according to its judgment of people’s needs; or it may give more to those who produce more thereby providing an incentive for people to work harder. The government may also distribute goods and services directly.

Advantages:

1. It is possible and easy for the government to take an overall view of the economy. National resources could be channeled into specific areas in order to achieve specific national goals.

2. High rate of investment could help specific up the rate of economic growth.

3. The rate of unemployment could be reduced if the government plans the allocation of labour resources in line with production requirements and labour skills.

4. Centrally planned economy helps in reducing the problem of income inequality. National income could be distributed in such a way that would guarantee equality and fairness.

Disadvantages:

1. A centrally planned economy deprives workers and consumers of certain level of freedom. Since the state has absolute control over resources allocation, workers would have no choice of where to work and consumers will have no choice of what to buy.

2. The government might enforce its plans and policies even if they were unpopular and this does not have significant influence on the welfare of the citizens.

3. The task of collecting, organizing and analyzing information becomes larger and more complex.

The execution of complex plans could be costly and time wasting.

4. Devising the best way or incentives to make workers and managers to be more productive and efficient without a reduction in quality is also a very difficult to make in a command economy.

(d) MIXED ECONOMY

Free-market and command economics have bundles of shortcomings associated with them. In real world situation, economics is a mixture of the systems. These two systems merge to form what is known as mixed economy. A mixed market economy is an economy in which there exists some government intervention. It is an economic system in which both the state and private sector direct the economy thereby reflecting features of both free-market and planned economics. Most mixed economics can be described as market economics with strong regulatory oversight by the state. In mixed market economics, the government may control the relative prices of goods and inputs by taxing or subsidizing them or by direct price controls. Relative incomes could also be controlled by the use of income taxes, welfare payments or direct controls over wages, rents, profits etc. The government may also control t he pattern of production and consumption by the use of appropriate legislation. It should be noted that though government can intervene in the economy to fix it, however, the government is not perfect and its intervention could be beneficial or bring about some adverse consequences.

4.0 CONCLUSION

The foregoing revealed that, every economic system has its basic features, merits and demerits. The four economic systems all focus on how scarce resources could be allocated in such a way that optimum satisfaction would be derived. They seek to provide solution to the fundamental economic problems of every society using considerably different approaches and methods.

5.0 SUMMARY

Different countries adopt different economic systems. The type of economic system practiced by a country depends on the degree such a country relies on the market or the government to allocate resources. It is the extent to which government intervenes in an economy that distinguishes one economy from the other. The traditional economic system relies on barter as a tool of resources allocation while taking into consideration the traditions and customs of the people. The free-market

economy depends on price mechanism. In this economy, demand and supply interact to fix prices. This market is void of government control and so it works automatically. It creates room for competition which may in turn affect the economy positively or negatively. The state makes all economic decisions in a command economy. It decides on the quantity of resources to be allocated, the output of an industry, methods and techniques to be employed in production and how output will be distributed. It opens avenue for easy and speedy address of various national economic goals. These goals include how to achieve economic growth, tackle unemployment and reduce inequality. A mixed economy combines then basic features of free-market and command economics. It mixes the actions of the market and government.

6.0 TUTOR MARKED ASSIGNMENT

1. What type of economic system do you think operates in Nigeria? Give reasons for your answer.

2. All real-world economics are a mixture of two systems- capitalism and socialism. Explain this statement.

7.0 FURTHER READINGS/REFERENCES

Abe I.O., (2000), Intermediate Economics, Mipon Biz. Centre, Lagos

John, Sloman and Alison Wride, (2009), Economics, Seventh Edition, Rotolito Lombarda, Italy.

Paul, A. Samuelson and William, D. Nordhaus (2005), Economics; Eighteenth Edition; Published Mcgraw-Hill International Edition.

Paul, R Krugman and Maurice Obsfeld (2009), International Economics Theory and Policy: Elm St.

Publishing Services; 8^th Edition.

Wale, O. and kunle, W., (2002), Introduction to Microeconomics and Application of Differentials Calculus to Economics, Leo Prints Nigeria Ltd.

MODULE TWO:

UNIT 6: THEORY OF DEMAND