- Types of Economic Systems
- Macroeconomics vs Microeconomics
- Economies of Scale vs Economies of Scope
- Elastic vs Inelastic Demand
- Cross Price Elasticity of Demand Formula
- Price Elasticity of Supply
- Marginal Revenue Formula
- Consumer Surplus Formula
- Supply vs Demand
- Aggregate Supply
- Price Elasticity of Demand Formula
- Currency Devaluation
- Money vs Currency
- Finance vs Economics
- Behavioural Economics
- Diseconomies of Scale
- Economic Profit
- Perfect Competition
- Monopolistic Competition Examples
- Monopoly vs Monopolistic Competition
- Oligopoly Examples
- Monopoly vs Oligopoly
- Perfect Competition vs Monopolistic Competition
- Disposable Income
- Purchasing Power Parity Formula
- Absolute Advantage vs Comparative Advantage
- Asymmetric Information
- Economic Utility
- Marginal Propensity To Consume (MPC) Formula
- Neoclassical Economics Theory
- Comparative Advantage Formula
- Cross Price Elasticity of Demand
Types of Economic Systems
There are innumerable economies in the world, with each one having a distinctive feature and identity. However, on a broad level, you can still classify them on the basis of common characteristics. There are basically four main types of economic systems – Traditional Economy, Command Economy, Market Economy, and Mixed Economy.
In this article, we learn about each of the types of economic system in detail.
#1 – Traditional Economy
This is a type of economic system which is based on agriculture, fishing, and hunting. These economies are based on traditional beliefs and ideologies. The goods and services are made based on the occupation of the people. Money is not used in such economy instead barter system is used. Most economists believed that most economies started as traditional economies.
Below are the common characteristics of Traditional Economy:-
- This type of economic system mostly centers on a family or a tribe.
- Mostly they have primitive kind of occupation like farming, hunting, fishing etc.
- They are self-sustained.
- This type of economic system does not engage much in trading. They consume whatever they produce and they rely mostly on barter systems.
- When people in traditional economies engage in farming from hunting, they try to settle down and gradually form a society.
Advantages of Traditional Economy
- Less threat to the environment as the people mostly use traditional ways of occupation like farming, fishing, cattle rearing.
- There is no wastage in this type of economic system. They consume whatever they produce.
Disadvantages of Traditional Economy
- As the economy is based on hunting and farming, the economy becomes disrupted in the offseason when the weather changes.
- In such times, people starve as they don’t have goods to survive on.
Now we will discuss some examples of the traditional economy to understand it better.
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Some of the countries like Bangladesh, Haiti might still use primitive ways of agriculture but they are not traditional economies as they have modern occupations as well. A traditional economy is about self-sustenance. You can refer to the Jarawa tribe of the Andaman Islands. They use primitive ways for survival.
#2 – Command Economy
This is a type of economic system where the government has a monopoly over the market. It decides which goods will be produced in what quantity. The government also determines the prices of the goods. All the laws and regulations regarding the market are also set by the government. So in this economy, there is no competition as the government decides all the pricing. The government also in charge of allocating the resources.
Below are the common characteristics of command economy:-
- This type of economic system doesn’t rely on the laws of demand and supply.
- Only the government decides the economic laws and regulations.
- The government controls the production of goods and services.
Advantages of Command Economy
- It doesn’t face inequality problems among the citizens.
- It also has low levels of unemployment
- As the government is in control of production, profit is not only the motive of production of goods.
- The entire society can be transformed according to the government’s economic plan as there is no other free force in the market.
Disadvantages of the Command economy
- Such economies lack innovation as it doesn’t have any free flow of ideas.
- This is a type of economic system might ignore the needs of the societies as in such situations black market can emerge as it will supply the goods that the economy is not producing.
- Supply of goods may not be as par with demand.
- These economies won’t take the risk of bringing something new as the government has its own set of policies and directives in place.
Some of the countries like North Korea, Cuba are examples of the command economy.
#3 – Market Economy
This is a type of economic system where the government has no control over the market, the citizens and businesses decide which goods will be produced in what quantity. The pricing is decided by the laws of demand and supply. The government can decide the pricing ceiling so that they do not charge the customer as per their free will. So in this economy, there is competition among the business as there is not much government intervention.
Below are the common characteristics of the market economy:-
- This is a type of economic system solely relies on the laws of demand and supply.
- The demand and supply laws control the quantity of production of goods and services.
Advantages of Market economy
- Such economies have a lot of innovation as it has a free flow of ideas.
- It has greater efficiency as there is a lot of competition in the market.
- It has a greater chance of wealth.
- It produces the goods according to the demand of the citizens as customers are ready to pay whatever price they charge.
Disadvantages of Market Economy
- It faces inequality problems among the citizens.
- As the government is in no control of production, profit is the only the motive of production of goods.
- There might be poor working conditions as there is no government regulation in place.
- Unemployment may rise as there is no government check in the market.
Some examples of the market economy are the United States, Germany, and Canada.
#4 – Mixed Economy
This is a type of economic system where is combined all the above three economies i.e. traditional, command and market. The government has an intervention over the market as well as free forces exist. It decides which goods will be produced in what quantity. The pricing is decided by the laws of demand and supply but the government decides the pricing ceiling and taxation norms. So in this economy, there is competition as well as the government safeguards the interest of the people. The government also in charge of creating an economic plan.
Below are the common characteristics of a mixed economy:-
- It relies on the laws of demand and supply.
- The government decides the economic laws and regulations.
- The government controls the production of goods and services.
Advantages of Mixed Economy
This is a type of economic system has all the advantages of a market economy like there is the free flow of ideas, it allows laws of demand and supply to determine the pricing policy and there is also a creation of wealth.
Disadvantages of Mixed Economy
Similarly, This is a type of economic system has all the disadvantages of the above-discussed economies. Some of them are like there might be wastage of resources, economic decisions might get delayed in execution in the private sector. There also might be poor planning as a large part of the government is not in control of the government.
Examples of a mixed economy are India, France.
This has been a Guide to Types of Economic Systems. Here we discuss the Top 4 main types of Economic Systems including Traditional, Command, Market and Mixed Economy along with their advantages & disadvantages and examples. You can learn more about Economics from the following articles –