Economic System – Meaning:

An economic system is a system a country follows and which collects,

organizes and allocates its resources, goods and services for its population.
An economic system regulates and drives the factors of production i.e., land,
labour, capital and enterprise/entrepreneurship.

Factors of Production

Types of Economic Systems:

Around the world, there are many types of economic systems
 Though different in characteristics, all have some basic features.
 Each economy functions have unique characteristics and
assumptions.
 Economic systems can be divided into four main types: traditional
economy, command economy, mixed economy, and market economy.

a. Traditional Economy:
 Very basic and most traditional of the four types.
 Lacks the ability to generate a surplus.
 Due to its primitive and conventional nature, the traditional
economic system is highly sustainable.
 Two current examples that follow a Traditional based Economic
System are BHUTAN and HAITI.

b. Command Economy:
 In a command system, there is a centralized authority – usually the
government – that controls a significant portion of the economic
market structure.
  The government controls valuable resources such as gold or oil.
The people regulate other less important sectors, such as
agriculture.
 In theory, the command system will work very well as long as the
central authority exercises control with the resources that the
general public think it’s needed for the country.
 But in reality, they react slowly to change because power is
centralized and because of this factor, they are mostly vulnerable
to economic crisis.
 NORTH KOREA is the only current country following command
economic system. Cuba, China and the USSR (now broken)
followed command economy in the past.

c. Market Economy:
 Market economic systems follow the concept of free markets.
 The government exercises little control and does not interfere with
important sectors of the economy. Instead, regulation comes from
the common public and the relationship between supply and
demand.
 The market economic system is mostly theoretical. From a
theoretical point of view, a market economy facilitates large
growth.
 But it allows private entities to amass a lot of wealth and
economic power and the equitable distribution of resources is
disrupted.
 The United States and England were examples of market
economies. Traditionally labelled as the world’s freest economy,
HONG KONG remains one of the most capitalist countries and
strongest free market economies.

d. Mixed Economy:
 Mixed economic systems are also known as dual systems. This
term can be re-written as a market economic system under the
strict control of the central authority.
 Mixed systems are the norm globally as it contains the advantages
of market and command economic systems.
  However, practically speaking, mixed economies have this biggest
problem in finding a best balance between markets and central
authority (the government).
 INDIA, FRANCE, SWEDEN are some of the best example of
Mixed economy countries.

Conclusion:
 An economic system is a system a country follows and which collects,
organizes and allocates its resources, goods and services for its
population.
 All economic systems should focus on these three questions:
i. What to produce?
ii. How to produce?
iii. In what quantities to produce? &
iv. Who receives the output of production?
 Customers are the Kings. They play a major role in the selection of the
economic system for a particular country.
 In today’s world, the dominant form of economic system at the world-
level is the market – oriented mixed economies.