Economic System

What’s economic system?

Explain 3kinds of economic system

1. Market Economic
a. Definitions
b. Advantages and disadvantages
2. Planned Economy
a. Definitions
b. Advantages and Disadvantages
3. Mixes Economy
a. Definitions

Answer : An economic system is an organized way in which a country

allocates resources and distributes goods and services across the whole
nation or a given geographic area. It is includes the combination of
several institutions, entities, agencies, decision-making processes and
patterns of consumption that make up the economic structure of a
specific community. Hence it is a type of social system.

An economic system defines how all the entities in an economy interact.

Defining them today is much more complicated than it used to be.
Ancient systems were relatively simple – trade was carried out using
barter and there were very few treaties and rules of engagement.

Planned economy: all decisions regarding production, distribution,

salaries, investment and prices are made by a central authority – usually
the government. The closest examples to this type of economy today are
North Korea and Cuba (to a lesser extent).

In a planned economy, also known as a centralized economy, controlled

economy or command economy, central government has planners who
make all the decisions.
According to economists, the most fundamental difference between a
market and planned economy is the existence of private property, i.e. it
exists in the free market and does not in the command economy.

Mixed Economy: market economies sometimes get into trouble, at which

point the government feels compelled to intervene. Sometimes, when
lawmakers believe some players are being exploited unfairly, or the
level playing field for business is under threat, the government may
become involved.

Similarly, the leaders of a command economy may decide that more

investment is required, and the only way to accomplish this is by
allowing more freedom.

The moment the government of a command economy loosens its grip, or

that of a market economy begins to intervene, they integrate some
aspects of the other. When this occurs, the result is a kind of hybrid
system – a mixed economy.

With the exception of North Korea, every country in the world has a
mixed economy. Even Cuba has elements of a mixed economy – it has a
huge black market which the government semi tolerates.

Small, ancient societies that depended on hunting and subsistence

farming had Traditional Economies. Some small societies today still
have this type of economy, such as a traditional Inuit village in North
America or a tribe in the Amazon rainforest.

“An economic system in which both the private enterprise and a degree
of state monopoly (usually in public services, defense, infrastructure,
and basic industries) coexist. All modern economies are mixed where
the means of production are shared between the private and public
sectors.