The Economic System: The Four Types Of Economic Systems

An economic system is the methods used to solve the fundamental economic questions like what, how and for whom to produce. Because of the scarcity, it forces each economic system to make a choice. There are four types of economic systems such as subsistence, command, market and mixed economies. The subsistence economic system is a traditional economic system. In this economic system, it does not have commercial. It relies on natural resources to provide basic needs. In command or centrally planned economic system, the government will control the economy. In this system, market prices will play a little role and government will allocate all resources. For the market economic system, it operated through the price mechanism. This system used the

Under this system, it allowed private economic freedom used capital and allowed the government to interfere in economic activities to achieve social aims. The price mechanism and regulated price operate will happen at the same time. The price mechanism is generally followed in consumer goods industries. When big shortage happened, prices will be controlled and public distribution system will be effective. There has both profit motive such as capitalism and social welfare. This is because public sector tries to reduce inequalities of economic and want to increase employment opportunities. Therefore, “the US economy is best described as a mixed economy, because even though it strongly advocates free market principles, it relies on the government to deal with matters that the private sector overlooks, ranging from education to the environment. The government has also helped nurture new industries and has played a role in protecting American companies from competition abroad. An example of this is the heavily subsidized agriculture industry in the US. Overall, the US has benefited from this combination”

This is because it controlled by the government. This economy helps to improve equality and safety that prevent people suffer from poverty. It allowed people to enjoy the financial reward of entrepreneurship. Under this system, the administration has an opportunity to seek after arrangements that will give a full-scale financial security, for example, an expansionary monetary approach amid times of retreat. Now, most of the industry and business are private firms. This mean that private firms are more efficient compared to another firm that controlled by the government because “they have a profit incentive for cutting costs and being innovative” (www.apecsec.org). Another advantage of mixed economy is it can diminish the measure of government regulation but government control predominant in a command economy. In a command economy, the government is primarily in charge but under mixed economy, the government has less controlled and