Types of Economic Systems

Types of Economic Systems

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Traditional Economy
shaped by traditions, customs, and beliefs

usually rural and farm-based

defined by bartering and trading

considered "primitive"

examples include the economies of the Inuit or tea plantations of South India

Market Economy
investment, production, and investment are based on supply and demand

prices of goods and services are determined in a free price system

in reality, such an economy does not exist in pure form

decisions on investment and allocation are made within the market

"hands-off" system; Laissez-faire capitalism

Command Economy
a central authority makes plans regarding investment and production

guided by central plans that aim to improve productivity and coordination

usually categorized as a form of socialism

government controls pricing, distribution, and resources

stable, but usually limits growth

Mixed Economy
both private sector and government direct the economy

means of production are mostly under private ownership

government influences economy through fiscal and monetary policies

government usually provides environmental protections, employment standards, welfare

government ensures healthy competition in the market