Economic systems, types of economic systems

The way that a society makes the three basic economic decisions depends on its economic system. An economic system is a particular way of organizing the relationships among businesses, households, and the government to make basic choices about what goods and services to produce, how to produce them, and who will get them. Economists often classify economic systems into four types or models:

Agrarian\traditional economies,

Market economies,

Planned or command economies

Mixed economies

10. Traditional economies rely on historical, social, political or religious arrangements and traditions to decide what to produce. These economies are focused on agricultural commodity or mineral commodity.

People in traditional economies often rely on barter – the direct exchange of goods and services for other goods or services – to meet their needs.

Strengths: Economic security/ stability

• Strong famity / community ties

• Economic safety net for most members

Weaknesses: Lack of innovation change

• Few economic opportunities for individuals

• Reinforcement of social hierarchies

• Low levels of production

11. Market economies are rooted in the belief that decisions are best made by individuals. In a market economy, individual buyers and sellers interacting in markets make the basic economic choices. Also called price systems, market economies rely on prices as the language through which buyers and sellers communicate their intentions.

Essential to this system is private property rights, which give individuals and businesses the right to own resources, goods and services, and to use them as they choose.

In a pure market economy, individuals are free to form businesses, operate with a profit motive, and make their own decisions about price or product – related matters, or to engage in free enterprise.

Strengths: Strong efficiency incentives

• Prices allow direct signals between buyers and sellers

• Economic freedom

• Wide selection of goods and services

• Incentives for innovation and growth

• Choices/prices of goods and services reflect buyers’ and sellers’ values and priorities

Weaknesses: People without marketable skills may not get needed goods and services

• Market power in hands of few sellers

• No protection for people with inadequate knowledge about products and jobs

• Business cost-minimizing efforts can lead to social costs

• Age, face or gender discrimination

Date: 2014-12-21; view: 1011