The method that scarce resources get distributed with an economy determines the exact type of economic system that it is. There are mainly four different types of economies, and here they are:
- Traditional economy- Command economy- Market economy- Mixed economy
When we look at each economy individually, we realize that each of them has their own strengths and weaknesses. Now let’s take a closer look at each of them in brief depth.
Traditional economic system:
It is the most traditional and also ancient types of economies on the entire planet. Vast parts of the world still function under this conventional economic system. These areas actually tend to be rural or even second to third world places which are not developed completely, or they have not started getting metropolitan either. These places are closely tied up to land and mainly by farming. Generally speaking, there will be almost none to little surplus in this type of economic systems. Each member of the traditional economy has a specified and also pronounced role, and these societies tend to be very close-knit and very socially satisfied. They also lack access to advanced forms of medicine and even technology that they can use.
Command economic system:
In a command ecosystem, a considerable part is controlled by a centralized power. Since the government is a central feature of the entire economy here, it is often involved in all sorts of planning and distribution of resources kind of activities. A command economy is completely capable of creating a healthy supply of all of its resources. It also rewards people with all sorts of affordable prices.
Market economic system:
In a kind of free market economy, households and firms act in the form of self-interest to determine how the resources get allocated and what goods get produced, even who and all buy these goods. This is completely in opposition to how a command economy works, where central governments get to reap and keep the profits. It is known that there is no government intervention when it comes to a pure market economy. No TRULY free market economy exists at all in the world. In this economy, the market and the government are separated. The separation prevents the government from becoming all to powerful and also keeps their best interests aligned with the markets.
Mixed economic system:
It is a combination of different types of all economic systems. This system is a perfect cross between a command economy and a market economy. When it comes to very common types of mixed economies, the market will surely be more or less government ownership-free except for a few key areas, when it comes to transportation or even sensitive industries like railroad and defense. The government may be involved in the regulation of private businesses.