Traditional economies rely on primitive methods and customs, while market economies are more developed and based on supply and demand without government interference. Traditional economies are found among indigenous peoples who rely on agriculture, while market economies are found in more developed societies. In a market economy, prices are determined by supply and demand.
A traditional and market economy are different types of economies which are defined by the methods applied by the members of the society. Traditional economies are largely underdeveloped economies that are characterized by the use of primitive equipment and crude methods. A market economy is more defined and developed. This type of economy is largely based on the laws of supply and demand to the exclusion of government interference.
The difference between a traditional economy and a market economy can be seen in the way economic activities are carried out in both types of economic systems. Traditional economies are remnants of prehistoric economies defined by a kind of subsistence life. In such an economy, members of society usually depend on customs, traditions and heritages to drive economic activities. Traditional economies can be found among indigenous peoples who largely depend on agriculture for their livelihoods. Market economies are mostly found in more developed societies.
This difference between a traditional economy and a market economy is further elaborated by the way companies that have traditional economies approach the problem of production. In such societies, the question of what to produce is driven by available resources. To this end, if there is a lot of land, members of that society may be dependent on agriculture. If the abundance of resources is water, society may depend largely on fishing. This is different from the market system, where many productive choices exist as a result of purposeful efforts by members of society to use different resources to increase the choice of goods and services available to consumers.
Market economies are differentiated from other economic systems in that the government usually refrains from manipulating the economy to a large extent. Governments usually try to intervene in other types of economic systems through methods including raising or lowering interest rates to encourage or discourage spending. The fact that the market economy depends on the principles of supply and demand is another factor differentiating between a traditional economy and a market economy.
In a market economy, the prices of goods and services are determined by the demand or lack of demand for those items. When demand exceeds the available supply, the value of those items will naturally increase. The value of such items will spontaneously decrease when demand decreases or when supply exceeds demand.
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