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Economic Systems
We identify three broad types of economic systems: market economy, command economy and mixed economy.
In a market economy, all productive activities are privately owned, meaning they are not owned by the state. Production is determined by the interaction of supply and demand, for example prices rise if demand exceeds supply.
The role of government in this type of economy is to encourage vigorous free and fair competition between private producers; how, outlawing monopolies and restrictive business practices.
In a command economy, the government plans the goods and services that a country produces, the quantity in which they are produced, and the prices in which they are sold. All businesses are state owned. In this economy state-owned enterprises have little incentive to control costs and be efficient because they cannot go out of business.
Instead of growing and becoming more prosperous, such economies tend to stagnate.
In a mixed economy, certain sectors of the economy are left to private ownership and free market mechanisms while other sectors have significant state ownership and government planning.
Here, governments also tend to take over troubled firms they consider to be vital to nation interests.
In a market economy, all productive activities are privately owned, meaning they are not owned by the state. Production is determined by the interaction of supply and demand, for example prices rise if demand exceeds supply.
The role of government in this type of economy is to encourage vigorous free and fair competition between private producers; how, outlawing monopolies and restrictive business practices.
In a command economy, the government plans the goods and services that a country produces, the quantity in which they are produced, and the prices in which they are sold. All businesses are state owned. In this economy state-owned enterprises have little incentive to control costs and be efficient because they cannot go out of business.
Instead of growing and becoming more prosperous, such economies tend to stagnate.
In a mixed economy, certain sectors of the economy are left to private ownership and free market mechanisms while other sectors have significant state ownership and government planning.
Here, governments also tend to take over troubled firms they consider to be vital to nation interests.
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