Types of Economic Systems  2011 Clairmont Press

Three Basic Economic Questions Every society must deal with providing goods and services for its people. Every society must also develop an economic system that determines how the limited resources of that society will be used. The economic system answers three basic economic questions: What goods and services will be produced? How will these goods and services be produced? Who will use the goods and services that are produced?

Traditional Economy Most of the economic decisions are made based on custom and tradition. People mainly produce for their own family and neighborhoods. Sometimes called a subsistence economy because people do not produce enough goods to sell. Bartering (swapping goods for other goods) is a common practice.

Command Economy Government planning groups make most of the basic economic decisions for the workers. The central planning group decides: Which goods and services to make The prices of the goods and services The jobs and pay each worker will receive Where the goods are produced and sold No individual could decide to start a new business

Market Economy Society’s economic decisions are made by individuals who decide what to produce and what to buy. Also known as: capitalism, free enterprise, and laissez-faire People would take an economic risk if they invest in a new business. If the business is successful then the people make money; but if the business fails then the investors lose their money.

Mixed Economy Nearly all modern economies in the world today have characteristics of all three economic systems. These are called mixed economies. No country in the world today has an economic system that is purely traditional, command, or market. Most countries in Africa would best be described as having mixed economies. They have characteristics of free market and free enterprise as well as some government planning and control.