There are various ways in which individual economic units can interact with one
another. Three basic ways may be described as the market system, the
administered system, and the traditional system.
In a market system individual economic units are free to interact among
each other in the marketplace. It is possible to buy commodities from other
economic units or sell commodities to them. In a market, transactions may take
place via barter or money exchange. In a barter economy, real goods such as
automobiles, shoes, and pizzas are traded against each other. Obviously, finding
somebody who wants to trade my old car in exchange for a sailboat may not always
be an easy task. Hence, the introduction of money as a medium of exchange eases
transactions considerably. In the modern market economy, goods and services are
bought or sold for money.
An alternative to the market system is administrative control by some
agency over all transactions. This agency will issue edicts or commands as to
how much of each good and service should be produced, exchanged, and consumed by
each economic unit. Central planning may be one way of administering such an
economy. The central plan, drawn up by the government, shows the amounts of each
commodity produced by the various firms and allocated to different households
for consumption. This is an example of complete planning of production,
consumption, and exchange for the whole economy.
In a traditional society, production and consumption patterns are governed
by tradition; every person’s place within the economic system is fixed by
parentage, religion, and custom. Transactions take place on the basis of
tradition, too. People belonging to a certain group or caste may have an
obligation to care for other persons, provide them with food and shelter, care
for their health, and provide for their education. Clearly, in a system where
every decision is made on the basis of tradition alone, progress may be
difficult to achieve. A stagnant society may result.
1. What is the main purpose of the passage?
A. To outline contrasting types of economic systems.
B. To explain the science of economics.
C. To argue for the superiority of one economic system.
D. To compare barter and money-exchange markets.
2. In the second paragraph, the word “real” in “real goods” could best be
replaced by ___,
A. high quality
3. According to the passage, a barter economy can generate ___.
A. rapid speed of transactions.
D. difficulties for the traders.
4. According to the passage, who has the greatest degree of control in the
A. Individual households
B. Small businesses.
C. Major corporations.
D. The government.
5. Which of the following is not mentioned by the author as a criterion for
determining a person’s position in a traditional society?
A. Family background
C. Religious beliefs.