Three Types of Economic Systems Exist

Three types of economic systems exist, each with their own
drawbacks and benefits; the Market Economy, the Planned

Economy and the Mixed Economy. An economic system is
loosely defined as country’s plan for its services, goods
produced, and the exact way in which its economic plan is
carried out. In general, there are three major types of
economic systems prevailing around the world.
Market Economy
In a market economy, national and state governments play a minor role. Instead, consumers and
their buying decisions drive the economy. In this type of economic system, the assumptions of
the market play a major role in deciding the right path for a country’s economic development.
Market economies aim to reduce or eliminate entirely subsidies for a particular industry, the pre-
determination of prices for different commodities, and the amount of regulation controlling
different industrial sectors.
The absence of central planning is one of the major features of this economic system. Market
decisions are mainly dominated by supply and demand. The role of the government in a market
economy is to simply make sure that the market is stable enough to carry out its economic
activities properly.
Read more about Market Economy on EconomyWatch.
Planned Economy
A planned economy is also sometimes called a command economy. The most important aspect
of this type of economy is that all major decisions related to the production, distribution,
commodity and service prices, are all made by the government. The planned economy is
government directed, and market forces have very little say in such an economy. This type of
economy lacks the kind of flexibility that is present a market economy, and because of this, the
planned economy reacts slower to changes in consumer needs and fluctuating patterns of supply
and demand.
On the other hand, a planned economy aims at using all available resources for developing
production instead of allotting the resources for advertising or marketing.
Mixed Economy
A mixed economy combines elements of both the planned and the market economies in one
cohesive system. This means that certain features from both market and planned economic
systems are taken to form this type of economy. This system prevails in many countries where
neither the government nor the business entities control the economic activities of that country -
both sectors play an important role in the economic decision-making of the country. In a mixed
economy there is flexibility in some areas and government control in others.
Mixed economies include both capitalist and socialist economic policies and often arise in
societies that seek to balance a wide range of political and economic views.
Economic system
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Circulation model of economic flows for a closed economy.
An economic system is the combination of the various agencies, consumers, entities (or even
sectors as described by some authors) that provide the economic structure that defines the social
community. These agencies are joined by lines of trade and exchange along which goods, money
etc. are continuously flowing. An example of such a system for a closed economy is shown in
the flow-diagram. The economics system involves production, allocation of economic inputs,
distribution of economic outputs, landlords and land availability, households (earnings and
expenditure consumption of goods and services in an economy), capitalists, banks (finance
institutions) and government. It is a set of institutions and their various social relations.
Alternatively, it is the set of principles by which problems of economics are addressed, such as
the economic problem of scarcity through allocation of finite productive resources.[1] An
economic system is composed of people, institutions, rules, and relationships. For example, the
convention of property, the institution of government, or the employee-employer relationship.
Examples of contemporary economic systems include capitalist systems, socialist systems, and
mixed economies. Today the world largely operates under a global economic system based on
the capitalist mode of production.
"Economic systems" is the economics category that includes the study of such systems.

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Three types of economic systems exist, each with their own

drawbacks and benefits; the Market Economy, the Planned

Read more about Market Economy on EconomyWatch.

Jump to: navigation, search

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