Traditional, Command & Market Economies of Central & South America

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  • 0:00 Market Economy
  • 1:50 Command & Mixed Economies
  • 3:40 Traditional Economy
  • 4:20 Lesson Summary
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Lesson Transcript
Instructor: Jessica Whittemore

Jessica has taught junior high history and college seminar courses. She has a master's degree in education.

This lesson will explain command, market, and traditional economies. It will give examples of each found in several Latin American nations, while also defining a mixed economy.

Market Economy

Growing up, my family owned a grocery store. Since my parents' names were on all the bills, they made most of the decisions. They decided what to buy and what to sell. For the most part, they also got to decide the prices of things like bananas, cereal, and coffee. They made the call on how many packs of hamburgers to grind or how many pounds of deli salads to make. Interestingly, not all business people around the world get to make the same decisions. As a case study of sorts, let's take a look at the traditional, command, and market economies of Central and South America.

Since most of us are familiar with a market economy, we'll start here. Stated very simply, a market economy is one in which economic decisions, such as pricing and what to produce, are based on supply and demand. In a market economy, the government does not step in and tell producers what needs to be made, nor does it walk around carrying a big pricing gun. Instead, prices and production ebb and flow as the people decide what they want to see on the store shelves and how much they are willing to pay for it. With this in mind, it's important to note that market economies are driven by profit. The more producers and sellers can get for a product, the more they will take.

When speaking of Central and South America, Colombia and Peru are great examples of market economies. With both of them trying to capitalize on their natural resources, Colombia lets supply and demand dictate the prices for the oil and coal it sells. Likewise, Peru depends on the market when exporting its gold and copper.

Like in most countries, there are times when the government steps into the process. However, for the most part, these two countries work under the market economy system. Adding to Colombia and Peru, Chile also has a market economy, and Costa Rica falls on the market economy side of the board, too.

Command & Mixed Economies

Opposite of the market economies are state-controlled economies. A state-controlled economy is referred to as a command economy. In a command economy, the government, and not the free market, controls economic activity.

When speaking of command economies, communism is usually the first system to be mentioned. Again, stated very simply, communism is a system of governance in which all property, resources, and productions are publicly or state owned. In other words, like a puppet master, the government pulls the economy's strings, commanding the decisions of what gets made, who makes what, who gets what, and who gets paid for what.

When discussing command economies of Central and South America, we have to look a bit into the past. During the latter half of the 20th century, countries like Nicaragua were under the yoke of the command economy. However, today most of the economies in the Western Hemisphere have become a mixture. They are not completely command, but they aren't freely market. Economists aptly choose to call these economies mixed economies, or economies that have characteristics of both market and command economies.

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