How are economic decisions made in traditional economies?

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boomer-sooner eNotes educator| Certified Educator

     In a traditional economy there are two types of economic decisions being made and they often conflict.  There are governmental economic concerns which focus on the well being of the country infrastructure and economy. The other are public sector economics which include businesses and individuals. They can be sub divided into different categories but traditionally they are each after the same thing: more money. 

     Governmental economic decisions are based largely on the best outcome for the government. This includes governments often making loans or grants which are toxic, meaning the potential for a return is almost nonexistent. This is done when the danger of not making the decision would be a greater harm to the whole economy. For an example the bail out loans were made to the banks and auto industry. The loans were detrimental to the government coffers yet the resulting instability is an even greater danger. 

     Business economic decisions are generally made with the survival and profitability of the company in mind. Rarely will companies make decisions which intentionally harm them unless they needed to in order to save themselves. Downsizing can damage sales and hurt market share but allow the company to operate during a recession. However typically businesses will make decisions based strictly on the bottom line where profits rule the day. Companies will do cost analysis to determine if the decision makes economic sense.