Economic Systems

Definition Economics is defined as the study of how goods and services are produced and distributed. There are usually not enough essentials or luxuries to satisfy all the needs and wants of a whole society. This leads to the economic principle of scarcity, by which decisions about production and distribution are based either on traditional factors, market forces, or government decree.

Different Economic Systems

Traditional economic system An economic system in which decisions are made on the basis of customs, beliefs, religion, habit, and so on. In traditional societies, scarce goods are often shared evenly, or else on the basis of age and gender.

Market economy An economic system in which individual producers own and determine the production, distribution, and consumption of goods and services. In market economies, products and services generally go to those who can afford to pay for them.

Market Economy

Command economy An economic system in which the government owns and controls all facets of the economy. Command economies usually satisfy the needs and wants of an elite class which controls the government and decision making.

Mixed economy : An economic system that uses aspects of more than one of the three basic types of economic systems (subsistence, command, and market).

The fundamental questions that all economic systems must answer what goods are produced? how they are produced? for whom they are produced? by whom they are produced? and how they are distributed?

Canada’s Economic System It is important to know that the majority of countries have some combination of the three economic systems outlined above. The mixed economy usually blends free enterprise (the market economy) and government control (the command economy). Canada is a good example of a mixed economy, with individual profit-seeking coupled with a government that taxes and spends for social services.

Essential features Incentive of equality for all people Public and private ownership of property Private ownership = feeling of control, provides incentive Public ownership = ideals of equality and economic strength is promoted (usually in areas of national importance, areas of high risk or to protect employment) Joint ownership is often favored Government controls and subsidies Redistribution of wealth social programs and progressive taxation, direct and indirect taxation (GST, airline fuel taxes)

Challenges Paying the price for social programs Difficult to raise taxes and lower social programs during economic upswing (hurts middle class) Large bureaucracies