Types of Economy
Stuid
Economy plays an important part in our life. It has been part of the social system since time immemorial. Over the decades, we have witnessed several economies with their own system of accommodation and planning. It is important to have knowledge about different forms of economies which play a crucial role in development.
Let’s take a look at basics of the economic system and the types of economy.
They are the means which are adopted by governments of different countries for distribution of resources in addition to services and goods. The arrangement relies on production factors including capital, labor, physical resources, entrepreneurs and information resources.
Types of Economy
There are primarily four types of economic systems:
Traditional Economic System
It involves very little specialization or division of labor. Traditional economic systems are prevalent in rural settings, in developing countries where farming is predominant.
Command Economic System
Such economies are controlled by a dominant centralized authority/government. In the socialist economic system, the government is the sole decision-making authority for controlling production and allocation. ‘It’ takes into consideration the best interest of its populace.
Market Economic System
A market economic system incorporates the principles of free market. The (capitalist) economy involves minimum government interference. There is hardly any control over resources. The demand and supply is regulated by market forces.
There is government intervention to a small extent as well. Regulations against monopoly are put in place for improving fair trade.
Mixed Economic System
It is also called the dual system. In a mixed economic system, the features of both capitalist and free-market systems are combined. Most of the countries in the modern world have mixed economic systems. Public services as well as private industries coexist in such nations.
Difference between types of economy
Price determination
- In a market economic system, price is determined by demand and supply in a market.
- On the other hand, in a command economic system, it is the government who decides the prices of goods and services.
- Meanwhile in a mixed economic system, the price is dependent on both the demand and supply and also on the government regulations.
Property ownership
- In a market economic system, ownership vests with the private entities.
- Public ownership of property is a feature of the command economic system.
- Meanwhile, in a mixed economic system, property is owned by both public and private entities.
Production
- Production is undertaken only with a profit motive in the market economic system.
- In a command economic system, the main objective of production is social welfare.
- In production in a mixed economy, the profit motive and social welfare goes hand-in-hand
Competition
- Competition is a common sight in a market economic system.
- Whereas in a command economic system, there is hardly any competition since the firms are state owned.
- In a mixed economy, only entities in the private sector encounter competition.
Government Intervention
- Government has a negligible role to play in a market economic system.
- In a command economic system, the government exercises full control over firms.
- When it comes to the mixed economic system, the government regulates the public sector. But plays a limited role in its private counterpart
Economic Sectors
Primary sector
Agriculture, farming, mining, and fishing are among the primary sectors. They have a direct connection with the environment.The primary sector aims at utilizing natural resources optimally.
Secondary sector
Secondary sector helps a country move beyond agriculture. Leaving behind the primitive economic system, it contributes towards building a developing market.
It creates better job opportunities, and holds about 20 percent of the gross domestic product.
Tertiary sector
Tertiary sector comprises service sectors including insurance, banking, communication, and transportation. The lower barrier of entry for businesses is the major benefit of the tertiary sector.
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Check your knowledge
Answer) Traditional economy.
Answer) Scarcity.
Answer) International Trade.