Brussels (Brussels Morning Newspaper) – An economic system refers to the distribution of available resources, services, and goods across a country. Moreover, it regulates land, capital, labor, and other resources. An economic system cannot run without proper strategies, agencies, and decision-making processes. Various ways of consumption can make the economic structure successful. Each country follows a different economic system. It has different characteristics but somehow they boast similarities.
Types of Economic Systems
There are four different types of economic systems. Here are some details regarding these systems:
1. Traditional Economic System
The traditional economic system is the oldest one. It is based on goods, services, and various trends or strategies. All these things rely on many people while there is little division of labor or specializations. The traditional economy is very basic and one of the oldest ideas among other types of systems. Different parts of the world are functioning keeping in mind these economic activities. Whether it is farming or other traditional income-generating methods, they follow it all.
Few resources are shared in communities. Sometimes the resources are scarce while others come out naturally. However, it can lack the potential and doesn’t offer any surplus sources for your benefit. No matter what, this system turns out to be highly sustainable. The output can be small at home and there is less wastage too.
2. Command economic system
The command economic system is all about dominating the centralized authority. It involves the government that will control a large portion of the economy. This system is generally known as a planned system. It doesn’t matter how much production is coming from the resources as the economy has an access to all. In most cases, the Government will come in and take control of the resources. When it comes to regulating the other sectors, many others are involved.
The command economic system can work well as the central authority. These are designed keeping in mind the interests of the population. However, this happens rarely. Command economy is rigid as compared to other systems. Everyone will react slowly as the power becomes more centralized. It can lead to vulnerable changes, especially during crises or emergencies. It is difficult for countries to adjust to such conditions and rapid changes.
3. Market economic system
The market economic system relies on the concept of free markets. The interference from the Government is minimal. However, they have control over the resources but it doesn’t mean they can interfere in other segments of the economy. There is a direct relationship between supply and demand. This system is mostly based on theory. Many countries believe that a pure market system doesn’t exist. The economic systems keep changing. Therefore, it can lead to interference from a central authority. Many Governments can enact laws that are regulated by fair trade and monopolies.
The theoretical point of view features a perfect economic facility. It can lead to substantial growth. This growth will be highest under the market economic system. One of the disadvantages of this system is that it will allow private entities to grow in power. This is particularly good only for those who have recourses of great value. When it comes to the distribution of resources everything will remain under control with economic strategies.
4. Mixed system
The mixed system is a combination of various characteristics of the market. It is quite similar to the command economic system. For this very reason, the mixed system is known as a dual system. Sometimes this term is used to describe e a system that is under strict control. Many countries that are in the developed western Hemisphere follow a mixed system. Apart from that many industries are private while the others are more for public services. They are under the control of the Government in many other ways.
If we talk about the mixed system it has become a norm globally. Surprisingly, the mixed system will combine one of the best features of the market and command system. However, a mixed system always finds it challenging to fit in with the right balance. They fail to mark a clear difference between the free market and Government control. Sometimes Government has to put up more control whenever necessary.
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Final Thoughts
There are four different types of economic systems. The traditional system focuses on the basics of goods and services. A centralized authority focuses on the command system. While the market system remains under the control of demand and supply. Each country has a different system to follow as they focus on something that works for them.