Economic Systems

Economic Systems

1. Command

   • Definition
     • Command Economies exist when the government largely decide what goods and services will be produced, who gets them, and how the economy will grow
   • Example
     • Also known as a planned economy, the government plans out what resources are needed and portions those out to the people. Housing and food are supplied to everyone living in this country.
   • Pros
     • There is an even playing field when it comes to citizens output of work and input of wealth received.
     • Every person is on the same economic level. No one is richer or poorer than another.
     • There are no business monopolies.
   • Cons
     • The government struggles to predict the amount of goods needed. Prices are revenue based, not market based. This causes surpluses and shortages of resources.
     • There is no business competition what so ever.

2. Mixed

   • Definition
     • Mixed economies exist where some allocation of resources is made by the market and some by the government.
   • Example
     • Private businesses and the government work alongside each other to profit. Both Socialist and Capitalist approaches are used in this economy. The government handles taxes and public assistance while still profiting though the market. Businesses and entrepreneurs are able to use the market to their advantage.
   • Pros
     • Supply and demand determine the market value.
     • There is more innovation and competition in this market. The more companies can create and improve products, the more profit they can make.
     • The harder one works, the more they can reap the financial benefits and rise to the top of the economy.

3. Traditional

   • Definition
     • A Traditional economy is a system that relies on customs, history, and time-honored beliefs. Tradition guides economic decisions such as production and distribution.
   • Example
     • This economy is still mostly used in third world countries. Agriculture, hunting, and fishing are still common ways to produce goods. People often barter and trade for goods as opposed to using money. People will follow herd of animals and go from hunters to farmers when sustainable land is found.
   • Pros
     • Each person is this society plays a vital role in its survival. Every person knows their worth and contributes accordingly.
     • There is less destruction to the environment as people use traditional methods of farming and hunting.
     • There is never a surplus of goods as each person receives only what is needed.
   • Cons
     • The weather changes can often dictate farming and causing people to lose crops or have none for months on end.
     • When animals that are hunted are scarce, people can starve.

4. Market

   • Definition
     • Free-Market economies exist when the market largely determines what goods and services are produced, who gets them, and how the economy grows.
   • Example
     • In this market the buyers demand a product and it is supplied based off the need/want for it. This also sets the price for the item, the more it is demanded, the more businesses can charge. The government ensures the rules of the market are follow, otherwise, there is little government interference.
   • Pros
     • Innovation is a large motivator since it provides competition and a greater chance at wealth
     • There is an ever lasting array of goods and services for people to choose from.
     • Freedom of choice: People can open any type of business they choose. the harder someone works, the more that person benefits.
     • Competition gives people the choice to purchase from who they want. People will often buy from a seller for the experience over the actual product.
   • Cons
     • There is a only a small social system in place to help citizens that are unemployed or disabled since these programs are funded through taxation.
     • There are many level of class in this economy. The rich can become very rich, while the poor are severely poor.
     • There is not enough regulation in the free market, but the government will often help certain corporations (bailouts)

5. The United States uses a mixed economic system including capitalist and socialist approaches. Private property and freedom of business are the pillars in which the U.S. is built upon. The government intervenes for the overall well-being of its citizens. Programs like Social Security, Welfare, Unemployment benefits, Medicare, and Medicaid are paid through taxes. There are also regulations that protect employees who are hired by private business, corporations, and even the self-employed. The government controls education, postal services, roads, and some healthcare. Private businesses are reliant upon the supply and demand of the market forces. Monopolies are illegal and competition is not only allowed, but supported and encouraged