Comparative Economics
➢ Comparative economics is a field that analyzes
and compares different economic systems,
focusing on how they function, their strengths
and weaknesses, and their impact on
economic outcomes.
➢ It examines various economic systems,
including;
❖ Traditional Economies
❖ Capitalism Economies,
❖ Socialism Economies, and
❖ Mixed Economies,
➢ and analyzes the transition from one system to
another.
Traditional Economies
Traditional economic system is one where economics including
production and distribution of goods and services are primarily based
on customs, traditions, and beliefs.
Key Characteristics/Principles:
1) Focus on Tradition and Custom: Economic decisions are rooted in
long-standing practices and beliefs, rather than market forces or
government intervention.
2) Subsistence Agriculture or Hunting: Many traditional economies
rely on agriculture, hunting, or gathering for survival, with
production primarily aimed at meeting the needs of the community.
Traditional Economies
3) Bartering and Limited Trade: Exchange of goods and services often occurs
through bartering or simple trade systems, with limited reliance on money
or complex financial systems.
4) Community-Based: Economic activities are often organized and managed
within a community or family unit, with a strong emphasis on cooperation
and shared resources.
5) Limited Innovation and Technology: Traditional economies often resist
technological advancements or new methods that could disrupt established
practices.
6) Limited Consumer Choice: Traditional economies often have limited
consumer choice because the production is based on tradition and not on
market demand.
7) No Competition: Traditional economies often lack competition because the
production is based on tradition and not on market demand
Free Market (Capitalist) Economies
A free-market economy relies entirely on market
mechanism.
There is no involvement or interference from the
government or any such controlling power.
This means there are no rules or regulations
imposed on either buyers or sellers.
The entire economy is determined by the
participants of the economy and the laws of
demand and supply.
Government stays out of business practices
“hands off” to let the market place determine
production, consumption and distribution.
Adam Smith
18th century Scottish
economist
Published “The Wealth
of Nations” in 1776
Explained the workings
of the free market within
capitalist economies
Invisible hand of the
market
Principles of Capitalism
Competition – more
businesses means
lower prices and
higher quality
products for
consumers to buy.
Principles of Capitalism
Voluntary Exchange
– businesses and
consumers MUST be
free to buy or sell
what and when they
want.
Principles of Capitalism
Private Property –
Individuals and
businesses MUST be
able to get the
benefits of owning
their OWN property.
Government
doesn’t control it.
Principles of Capitalism
Consumer Freedom –
consumers get to
make free choices
about what to buy
and this helps drive
production (Demand
drives Supply).
Principles of Capitalism
Profit Motive – people
want to make or save
$$$$. Their “Self Interest”
motivates Capitalism.
Minor role of government:
The government does not
interfere in day-to-day
economic activities and
confines itself to defense
and maintenance of law
and order.
Command/Socialism
Economies
A command economy is the opposite of a free
market economy.
In a command economy system, there is one
centralized power, which in most cases is
the government. So, the government makes all
decisions regarding the economy.
It will decide which goods and services will be
produced, in what quantities.
The price will also be determined by such
centralized power and not by market forces.
Karl Marx
19th century
German economist
He said
Government should
control economy
and distribute goods
and services to the
people
Founder of
revolutionary
socialism and
communism
Main Features of Command Economy
✓ Collective ownership: All means of production are owned by
the society as a whole, and there is no right to private property.
✓ Central economic planning: Planning for resource allocation
is performed by the controlling authority according to given
socio-economic goals.
✓ Strong government role: Government has complete control
over all economic activities.
✓ Maximum social welfare: Command economy aims at
maximizing social welfare and does not allow the exploitation
of labor.
✓ Relative equality of incomes: Private property does not exist
in a command economy, the profit motive is absent, and there
are no opportunities for accumulation of wealth. All these
factors lead to greater equality in income distribution, in
comparison with capitalism.
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Mixed Economy
A mixed economy is a perfect combination
between a command economy and a free
market economy. So, the economy is free
of government intervention.
But the government will regulate and
oversee specific sensitive areas of the
economy like transportation, public
services, defence etc.
The best examples of such a mixed
economy are India and France.
Keynesian Economics
(cont.)
Government should intervene in
economic emergencies through
tax and spending (Fiscal Policy)
and changing the money supply
(Monetary Policy).
This is done to smooth out the
business cycle (expansion and
recession) and keep inflation low.
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