Kinds of Economic System

Kinds of Economic System

The survival of any society depends on its ability to provide food, clothing and shelter for its people. All societies have something else in common. They have an economic system or an organized way of providing for the wants and needs of their people. The way in which these decisions are made will determine the type of economic system. There are three major kinds of economic systems: traditional, command and market. In a society with a traditional economy nearly all economic activity is the result of ritual and custom. Habit and custom also prescribe most social behaviour.

Individuals are not free to make decisions based on what they want or would like to have. Instead, their roles are defined. The main advantage of the traditional economy is that everyone has a role in it. This helps keep economic life stable and community life continuous. The main disadvantage of the traditional economy is that it tends to discourage new ideas and even punishes people for breaking rules. It tends to be stagnant or fails to grow over time. Other societies have a command economy ??” one where a central authority makes most of the What, How and for Whom decisions.

Economic decisions are made at the top and people are expected to go along with choices made by their leaders. It means that major economic choices are made by the government. It decides goals for the economy and determines needs and production quotas for major industries. The major advantage of a command system is that it can change direction drastically in a relatively short time. The major disadvantage of the command system is that it does not always meet the wants and needs of individuals. The second disadvantage of the command economy is the lack of incentives.

In most command economies today workers with different degrees of responsibility receive similar wages. The command economy requires a large decision-making bureaucracy. This causes production costs to increase and decision-making to slow down. A command system does not have the flexibility to deal with day-to-day problems. In a market economy, the questions of What, How and for Whom to produce are made by individuals and firms. In economic term a market is an arrangement that allows buyers and sellers to come together to conduct transactions.

Consumers like products with low prices and high quality, roducers in a market economy will try to supply such products. A market economy has several major advantages that traditional and command economies do not have. A market economy is flexible. The second major advantage of the market economy is the freedom that exists for everyone involved. Producers are free to make whatever they think will sell. The third advantage of the market economy is the lack of significant government intervention. The final advantage of the market economy is the incredible variety of goods and services available to consumers. Kinds of Economic System By epzl