Describe the different types of economic systems
The economic system represents a combination of methods, means, and ways that help to organize the production of goods and services, its distribution, and allocation within one territory. In general, economic systems regulate different factors in economics, such as capital, labor, physical resources, and entrepreneurs. Nowadays, economists reveal four types of economic systems used in the United States and other countries, namely, traditional, market, command, and mixed systems.
Each economic system has its peculiarities, advantages and disadvantages, as well as ways for implementation and utilization. Moreover, the type of a system that prevails in an economy of a state depends on many factors. These factors include the level of the economic development of the country, the cultural context of the population, as well as the quantity and quality of internal resources of the state. Therefore, it can be suggested that an economic system is a type of social system, as the economy is an integral part of any society. For a better understanding of the idea, it is necessary to reveal the characteristics of the economic systems mentioned above.
The traditional economic system is based on the cultural peculiarities of society. Traditions, beliefs, and customs are taken into account in the production of goods and services for people. In this case, the habits of the population are inherited from their ancestors and are rarely changed. The traditional economic system example can be found in developing countries, especially in South Africa.
The economic relationships there are characterized by barter trade rather than purchasing services and goods for a standard currency. The advantages of this system include low-cost production and a small amount of waste, while disadvantages are represented by little profit, dependence on climate conditions, and low living standards.
The market economy system is also called a free economy and was introduced in the 18th century by a Scottish economist, Adam Smith. In this system, the production of goods and services depends on their consumption by customers. In other words, the greater the demand, the higher the supply and vice versa. The government does not interfere in the economy where the market system prevails.
It ensures free entrance to the market for any company, which results in high competitiveness. This type of system is beneficial because serious competition pushes manufacturers to lower prices and use innovations to improve the qualities of the products and services they provide. The drawbacks of this system include a high unemployment rate and social inequality.
The command economy system is based on the theories and ideas of a German philosopher, Karl Marx. Unlike the market system, this type of economy implies interference of the government on all levels of production of goods and services. Thus, the government decides what should be produced, formulates and regulates prices, as well as controls the equal distribution of goods among people (Anastasia, 2019).
This type of economy ensures the effective mobilization of resources and equal access of people to social welfare, such as education or healthcare services. However, it restricts the freedom of manufacturers and does not encourage competitiveness and innovations.
The mixed economy system combines two types of economies, namely, the command economy and the free-market economy. It implies government interference to the economy of the country in some areas, which is not performed at the same level as in the command economy. The benefits of this system include opportunities for innovation, making a profit, and establishing social welfare. However, there are also some disadvantages, such as high taxes and low economic growth.
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1. Custom-Writing.org. "Describe the different types of economic systems." June 3, 2020. https://custom-writing.org/qna/different-types-of-economic-systems/.
Custom-Writing.org. "Describe the different types of economic systems." June 3, 2020. https://custom-writing.org/qna/different-types-of-economic-systems/.
Custom-Writing.org. 2020. "Describe the different types of economic systems." June 3, 2020. https://custom-writing.org/qna/different-types-of-economic-systems/.
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