There are 4 types of economic systems. These economic systems are set in their ways. As they can work differently from each other. Knowing which system is in place makes it easier to figure out who is supposed to get what.
The different types of economic systems are defined by how scarce resources are redistributed to the economy. So what are the different types of economic systems and how do they work?
Types of economic systems
1. Traditional Economic System
It’s called the traditional economic system as it is the oldest system in the world. This economy is closely tied to farming. So it is mostly used in countries that are rural in nature.
In this kind of economic system, a surplus of resources would be very rare. This is because each person in the system would have an assigned role that is specific. The traditional economic system has a down point as it lacks in technology & advanced medicine.
2. Command Economic System
A large part of an economic system is controlled by centralized power, such as a central government. Through this kind of system, the centralized power is in control of planning and the distribution of resources, as well as the industries that create those resources.
The advantages of this kind of system include providing jobs to everyone. The focus is on the good of society rather than the individual. Its prices for resources are kept affordable. The main disadvantages are that demands are difficult to calculate so it can be difficult to ration. There is no innovation since only the most important jobs are funded.
3. Market Economic System
It is the firms and households that determine how resources get allocated, what is produced, and who buys the goods. After all, is said and done. The central command gets to keep all the profits instead of redistribution. No government intervention is involved; market and government are kept separate in order to prevent the latter from becoming too powerful.
Consumers pay the price for what they want. Businesses provide goods and services which profit them only. This is the advantage of the market economic system. This creates an incentive for constant innovation in order to produce better products for customers. A few disadvantages include not focusing on demographics. who can’t produce the most profit, such as the disabled and the elderly?
4. Mixed Economic System
A mixed economic system combines the other types of economic systems together, usually a cross between market and command economy. The market is pretty much free to do what they want. Except in some specific sectors such as defence and transportation.
The advantages of a mixed economic system include less government. Intervention in some sectors while still stepping in to prevent monopolies from occurring. State-run diligence is frequently subsidizing is the disadvantage of this kind of system. It ends up going into debt because there’s no competition in the request.
Most economic systems in the world follow the mixed economic system but since it’s the one that works best for everyone.