The Four Types of Economic Systems:
As you probably know, there
are countless economies across the world. All of them are unique in their own
way, but they still share a significant number of characteristics. Thus,
we can categorize them into four types of economic systems;
traditional economies, command economies, market economies and mixed economies.
All of them rely on a different set of assumptions and conditions and of
course, they all have their own strengths and weaknesses. We will look at each
of them in more detail below.
1-Traditional Economic System
A traditional economic
system focuses exclusively on goods and services that are directly related
to its beliefs, customs, and traditions. It relies heavily on individuals and
doesn’t usually show a significant degree of specialization and division of
labor. In other words, traditional economic systems are the most basic and
ancient type of economies.
roles are set.
predictable, and continuous.
Lower standard of living.
A mixed economic system refers to any kind of mixture
of a market and a command economic system. It is sometimes also referred to as
a dual economy. Although there is no clear-cut definition of a mixed economic
system, in most cases the term is used to describe market economies with a
strong regulatory oversight and government control in specific areas (e.g.
public goods and services).
A command economic system is characterized by a
dominant centralized power (usually the government) that controls a large part
of all economic activity. This type of economy is most commonly found in
communist countries. It is sometimes also referred to as a planned economic
system, because most production decisions are made by the government (i.e.
planned) and there is no free market at play.
Basic Needs taken care of.
Education, public health, other services cost very
little if anything.
Very little unemployment.
Doesn’t meet wants.
Requires a large bureaucracy.
New and different ideas are
No room for individuality.
A market economic system relies on free markets and
does not allow any kind of government involvement in the economy. In this
system, the government does not control any resources or other relevant
economic segments. Instead, the entire system is regulated by the people
and the law of supply and demand.
Individual Freedom for all.
Lack of government interference.
Incredible variety to choose from.
High degree of consumer satisfaction.
Rewards only productive people.
Workers and businesses face
Not enough public goods (Education,
situation that arises when people have unlimited wants in the face of limited
In many societies all over the world they are facing a
disease called scarcity and for the first time you will think that in a
non-developed country but it is rife.
But it is also fact for relatively flourishing
economics such as those of Switzerland, the USA and the UK.
development: ‘development which meets the needs of the present
without compromising the ability of future generations to meet their own needs’
It is important to know that there is a big difference
between renewable resources such as fresh water and nonrenewable resources such
as fossil fuels.
In the case of renewable resources, there have been
many discussion in last years about the dangers of depleting such resources at
too rapid a rate to allow replacement.
One example of this has been the stocks of some fish
such as cod, where it has been argued that over-fishing may lead to the
extinction of the species. Similar arguments have been applied to other
resources such as the rainforests. This has highlighted the importance of sustainable development.
in decision making, the value of the next best alternative forgone.
One of the most important concepts in economics: the
notion of Opportunity Cost. When you want
to consume a good one, always is a priority price. For example, suppose you are
on a diet and at the end of the day you have to take a piece of chocolate or a
piece of cheese. If you choose the chocolate, the opportunity cost of the
chocolate is the cheese that you could had instead.
is the rate at which the price of goods and services rises and the consequences
of this decrease the purchasing power of the local currency, then the banks try
to maintain the smooth economy and reduce inflation and avoid deflation.
For example, an individual buys a pack of cigarettes
at 10 pounds a year ago and now, after an increase in the inflation rate, the
depreciation value of the currency purchase may not be able to buy 15 pounds
due to the large decline in purchasing power.
growth: The GDP growth rate measures how fast the economy is growing.
GDP measures the economic output of a nation. It does
this by comparing one quarter of the country’s gross domestic product to the
The growth rate of total output is based on four
components. The main driver of production growth is personal consumption, which
follows the critical mass of retail sales.
Government spending is the second driver of growth.
The third component is business investment, including
construction and inventory levels.
The Fourth is net trade. Exports add to GDP while
imports subtract from it.