Types of Economies

Market Economy What is a 'Market Economy' A market economy is an economic system in which economic decisions and the pricing of goods and services are guided solely by the aggregate interactions of a country's citizens and businesses and there is little government intervention or central planning. BREAKING DOWN 'Market Economy' Market economies work on the assumption that market forces, such as supply and demand, are the best determinants of what is right for a nation's well-being. These economies rarely engage in government interventions such as price fixing, license quotas and industry subsidizations.economiesprice fixingquotas

Command or Centrally Planned Economy A command economy is a system where the government, rather than the free market, determines what goods should be produced, how much should be produced and the price at which the goods will be offered for sale. The command economy is a key feature of any communist society. China, Cuba, North Korea and the former Soviet Union are examples of countries that have command economies.free market Also known as a planned economy, command economies are unable to efficiently allocate goods because of the knowledge problem - the central planner's inability to discern how much of a good should be produced. Shortages and surpluses are a common consequence of command economies. A free-market price system, on the other hand, signals to producers what they should be creating and in what quantities, resulting in a much more efficient allocation of goods.economiesShortages

Traditional Economy Let's imagine you and your spouse decide to take a vacation to some far off destination. You decide to go to a third world country so that you can experience life from a different perspective. You want to experience a place where the people have strong customs and traditions and monetary status is not significant. What you are looking for is a place that has a traditional economy. So, what exactly is a traditional economy? Well, a traditional economy is that in which customs, traditions, and beliefs are rich in developing the goods and services for the area. In other words, a traditional economy is one that is built around the way a society lives. The goods and services are determined based on the livelihood of the people.

Mixed Economies What is a 'Mixed Economic System' A mixed economic system is an economic system that features characteristics of both capitalism and socialism. A mixed economic system allows a level of private economic freedom in the use of capital, but also allows for governments to interfere in economic activities in order to achieve social aims. This type of economic system is less efficient than capitalism, but more efficient than socialism.capitalism While most developed nations today could be classified as having mixed economies, they are often said to have market economies because they allow market forces to drive most of their activities, typically engaging in government intervention only to the extent that it is needed to provide stability. Although the market economy is clearly the system of choice in today's global marketplace, there is significant debate regarding the amount of government intervention considered optimal for efficient economic operations.

Comparing Economic Systems TraditionalCommandMarket Who/What makes the decisions? Custom, Tradition & beliefEconomic Planners from Government Producers & Consumers/Buyers and Sellers in the marketplace AdvantagesBest of past is retained. Old ways have proven to work Efficient planning Allocating resources well Ease for workers Variety of goods/services Positive incentives result in greater efficiency DisadvantagesEconomic development difficult Low standard of living Survival & barter Can lead to shortage & surpluses No individual wants/needs taken into consideration No security or guarantee of success Permits inequality How does this reflect the values of a culture? Age, sex and family determine role The needs of the state/government are the most important Rewards risk taking and individual achievement 1. M 2. M 3. C 4. T 5. C