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Economic System and Its Types

An economic system describes how a country organizes its economy. There are three main types: traditional, command, and market. Most countries today use a mixed system combining market and command elements. A traditional economy relies on customs for decisions. A command economy has the government control production and allocation. A market economy uses supply and demand for decisions with private ownership.

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Munawar Bilal
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14 views

Economic System and Its Types

An economic system describes how a country organizes its economy. There are three main types: traditional, command, and market. Most countries today use a mixed system combining market and command elements. A traditional economy relies on customs for decisions. A command economy has the government control production and allocation. A market economy uses supply and demand for decisions with private ownership.

Uploaded by

Munawar Bilal
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Economic Systems

Economic Systems

▪ An economic system describes how a


country’s economy is organized
▪ Because of the problem of scarcity, every
country needs a system to determine how to use
its productive resources
▪ Scarcity = not having enough of something
▪ An economic system must answer 3
questions…
Economic Systems
1. WHAT TO PRODUCE? (What kinds of goods and
services should be produced?)

2. HOW TO PRODUCE? (What productive resources are


used to produce goods and services?)

3. FOR WHOM TO PRODUCE? (Who gets to have the


goods and services?
Three Types of Economic
Systems:
▪ 1. Traditional Economy

▪ 2. Command Economy

▪ 3. Market Economy

▪ * Most countries are… Mixed Economies!


(Market + Command)
Traditional Economy
▪ An economic system in which economic
decisions are based on customs and beliefs
▪ People will make what they always made &
will do the same work their parents did
▪ Exchange of goods is done through
Bartering: trading without using money
Traditional Economy
▪ Who decides what to produce?
▪ People follow their customs and make what
their ancestors made
▪ Who decides how to produce goods &
services?
▪ People grow & make things the same way that
their ancestors did
▪ Who are the goods & services produced
for?
▪ People in the village who need them
Traditional Economy

▪ Examples:
▪ Villages in Africa and South America
▪ the Inuit tribes in Canada
▪ the caste system in parts of rural India
▪ the Aborigines in Australia
Command System
▪ Government makes all economic decisions &
owns most of the property
▪ Governmental planning groups determine such
things as the prices of goods/services & the wages
of workers

▪ This system has not been very successful & more


and more countries are abandoning it
Command Economy
▪ Who decides what to produce?
▪ Government makes all economic decisions
▪ Who decides how to produce goods
and services?
▪ Government decides how to make
goods/services
▪ Who are the goods and services
produced for?
▪ Whoever the government decides to give them
to
Command System

▪ Countries with communist governments have


Command economies

▪ Examples: There are no truly pure command


economic systems, but close countries are:
North Korea, former Soviet Union, Cuba

*Germany and Russia have moved away from


having a Command economy since 1991. Now they
have a Mixed economy.
Market Economy
▪ An economic system in which production
and distribution questions are answered by
prices and profits (supply and demand)
▪ Most of the resources are owned by private
citizens
▪ Economic decisions are based on Free
Enterprise (competition between
companies)
▪ Important economic questions are not answered
by gov. but by individuals
▪ Gov. does not tell a business what goods to
produce or what price to charge
Market Economy

▪ Who decides what to produce?


▪ Businesses base decisions on supply and demand
and free enterprise (PRICE)
▪ Who decides how to produce goods
and services?
▪ Businesses decide how to produce goods
▪ Who are the goods and services
produced for?
▪ consumers
Market Economy

▪ There are no truly pure Market economies,


but the United States is close.
▪ In a truly free market economy, the
government would not be involved at all
▪ There would be no laws to protect workers form
unfair bosses
▪ There would be no rules to make sure that
credit cards were properly protected

▪ Many societies have chosen to have some


rules to protect consumers, workers, and
businesses (MIXED)
▪ These rules reduce the freedoms that businesses
have, but they also protect the workers and
consumers
Mixed Economy
▪ Market + Command = Mixed
▪ There are no pure command or market
economies.
▪ To some degree, all modern economies exhibit
characteristics of both systems and are often
referred to as mixed economies.
▪ Most economies are closer to one type of economic
system than another
▪ Businesses own most resources and determine
what and how to produce, but the
government regulates certain industries
Mixed Economy

▪ Who decides what to produce?


▪ businesses
▪ Who decides how to produce goods and
services?
▪ Businesses, but the government regulates
certain industries
▪ Who are the goods and services produced
for?
▪ consumers
Mixed Economies
▪ Most democratic countries fall in this
category (there are no truly pure Market or
Command economies).
▪ Examples: Brazil, Mexico, Canada, UK, US,
Germany, Russia, Australia, etc.
Economy Continuum
Command Market

Germany UK US
Cuba Russia Australia
Which Economic System Is Best?
▪ Market system has proven to be best
because it promotes the goals of growth,
freedom, & efficiency
▪ Citizens are free to own their own property and
use it in the most efficient and profitable way
▪ Command and Traditional systems
sometimes offer more security, but are not
nearly as strong in efficiency, growth,
freedom, and environmental quality

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