Four Economic Systems

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The Four Economic Systems

In an economic system, there are three sets of decisions need to be made. What to produce, how to produce it, and who consumes them. The answers to all these questions are determined by buyers and sellers interacting with each other in different markets and economies. That can or not be controlled by the government or any authority.

A traditional economy is an economic system in which traditions, customs, and beliefs help shape goods and the services the economy produces. Rural communities that are apart from the world are most likely to use a traditional economy. Traditional economies use bartering or trading, instead of money to acquire goods and services. There are rarely any surplus produced, and if any excess …show more content…
Government involvement in regulating in a market economy is limited to ensure that the rules of the market are enforced and applied fairly to all participants. The law of demand states, that consumers buy more when the price decreases and less when its price increases. Competition among the market forces pressure to keep prices low, also ensures that goods and services are provided efficiently. Lower prices are where the best competitors remain, this applies to workers and consumers. The downside to a market economy is that firms are motivated by maximizing earnings by trying to reduce their costs unethically and also exploiting workers. Also, when firms are striving to maximize their profits, they may neglect external costs that may damage the environment. There can be an unfair advantage to the wealthy as the government does not intervene which can lead to a monopoly situation in the economy and can lead to exploitation of consumers. The market economy may cause a larger gap between the wealthy and poor because the wealthy have more authority over making decisions, where the poor do not have any say in the matter. The market system provides more goods and services to the consumers who have more money than …show more content…
This is a key feature for a communist society like the Soviet Union had before it became U.S.S.R. Shortages are common within this economy where the government disconnects from their own people, whose needs are not met. There is often a monopoly in industries controlled by the government that are the most important in meeting the needs of the society. A command economy sets prices based on revenue needs, resulting in pricing that is almost always inefficient. In this economy it discourages entrepreneurs from pursuing business ventures, with the government holding a monopoly over the economy it keeps individuals from becoming successful. Not all is bad in a command economy, the government can mobilize resources on a large scale, and can also execute massive projects and create industrial power. With their capability to do projects on a large scale resources are used efficiently, with everything being used for a specific project or another. Though not all needs are met the government does ensure everyone has access to basic necessities. The supporters this economy claim that it prevents the government to overcome market failure, inequality and create a society that maximises social welfare. With the government in charge there is no self-gain among the people it’s about the greater good for
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