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Economic Systems

Economics studies how goods and services are created and allocated in society, influenced by the principle of scarcity. Various economic systems arise to manage these challenges. Traditional economies base decisions on customs, while market economies rely on individual ownership and pricing. In contrast, command economies are government-controlled, often catering to elite interests. Mixed economies blend elements of these systems. Each system confronts fundamental questions about production, distribution, and ownership, shaping how societies address their needs and wants.

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Economic Systems

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  1. Economic Systems

  2. Definition • Economics is defined as the study of how goods and services are produced and distributed. • There are usually not enough essentials or luxuries to satisfy all the needs and wants of a whole society. • This leads to the economic principle of scarcity, by which decisions about production and distribution are based either on traditional factors, market forces, or government decree.

  3. DifferentEconomic Systems

  4. Traditional economic system • An economic system in which decisions are made on the basis of customs, beliefs, religion, habit, and so on. • In traditional societies, scarce goods are often shared evenly, or else on the basis of age and gender.

  5. Market economy • An economic system in which individual producers own and determine the production, distribution, and consumption of goods and services. • In market economies, products and services generally go to those who can afford to pay for them.

  6. Command economy • An economic system in which the government owns and controls all facets of the economy. • Command economies usually satisfy the needs and wants of an elite class which controls the government and decision making.

  7. Mixed economy • :An economic system that uses aspects of more than one of the three basic types of economic systems (subsistence, command, and market).

  8. The fundamental questions that all economic systems must answer • what goods are produced? • how they are produced? • for whom they are produced? • by whom they are produced? • and how they are distributed?

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