Scarcity forces people to make economic choices about how to use their resources. Throughout history people working alone, or in groups, have come to grips with this reality by forming economic systems. An economic system is the sum total of all economic activity that takes place within a society. That is, economic systems are comprised not only of the tangible economic institutions such as business firms, banks, and stock exchanges, but also the more subtle nuances that underlie business activity such as values, practices, customs, and traditions.

Economic systems also answer the three basic economic questions. What goods and services should be produced and in what quantity? How should these products be produced? For whom should these products be produced? Responses to the basic economic questions help distinguish between different types of economic systems: traditional economies, command economies, and market economies. In reality, virtually all economies today are mixed economies—economies that adopt features mainly from the command and market models.

Traditional Economy

A traditional economy is a type of economic system that relies on custom or tradition to answer the basic economic questions. That is, society's blueprint for economic activity is written by previous generations. Historically, traditional economies produced goods that satisfied basic survival needs for food, clothing, and shelter. These isolated peoples produced few surpluses and, as a result, there was little trade. Production methods, which relied on the use of primitive capital goods and a rigid division of labor, varied little from one generation to the next. Primitive communalism, based on community needs and kinship ties, helped determine who shared in the economy's output. Today there are few traditional economies. Small enclaves of people living in remote regions of Africa, Asia, Latin America, and the Arctic regions have many characteristics of traditional economies. Examples include the Mbuti Pygmies of central Africa, the Kavango tribes of Namibia, the Nigritos of the Philippines, and the Saharias of central India.

The Mbuti Pygmies have lived in the Ituri Forest for thousands of years. The Ituri is a rainforest in the present-day Democratic Republic of Congo (formerly Zaire), but Pygmy bands also inhabit regions that straddle neighboring Congo Republic and Cameroon. The Mbuti live in small bands or groups, are nomadic, and are well acquainted with the bounty of the forest, which provides them with food, clothing, and shelter. The Mbuti, who number 70,000 to 80,000 people, are mainly hunters and gatherers. The simple division of labor that has been passed from generation to generation is determined mainly by gender and age. Men lead the hunts using primitive capital such as the bow and arrow. Women have primary responsibility for cooking and maintaining the temporary campsites. Both men and women gather edible plants, such as fruits, mushrooms, and roots. The entire Mbuti community takes part in fishing, which typically involves corralling fish into nets. Hence, the needs of the community are met through collective action.

Today the Mbuti have some economic contact with the outside world. For instance, they trade with nearby Bantu tribes. Other contacts have not been as beneficial. Government outreach programs to teach farming techniques to the Mbuti have proven largely unsuccessful. Aggressive timbering and other development projects have also casts a shadow on the Mbuti lifestyle.

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