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CMA Foundation · Fundamentals of Business Economics and Management · The Fundamentals of Economics

In a traditional economy, such as a remote tribal community, how are the basic economic problems of what, how and for whom to produce mainly solved?

In a traditional economy, the basic problems of what, how and for whom to produce are solved mainly by customs, habits and practices passed down across generations. Prices, central planning and corporate profit-seeking play little role in such subsistence-oriented communities.

  1. ABy the price mechanism operating through competitive markets
  2. BBy a central planning commission setting targets
  3. CBy customs, habits and practices handed down over generationsCorrect
  4. DBy profit-maximising decisions of large corporations

Explanation

A traditional economy relies on custom, inherited occupations and established practice to decide production and sharing. Prices and markets characterise capitalism, central targets characterise planning, and corporate profit-seeking is not typical of a subsistence community.

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