What is an economic system? It is a system of production, distribution, exchange and consumption of a nation’s goods and services. Economic systems are an important means of meeting the needs of citizens in a society. There are four main types of economic systems; traditional economies, command economies, market economies, and mixed economies. In the pages that follow, you will learn more about each type of economic system, including where the system is located, who makes decisions about the economy, who controls the factors of production (including land, capital, and labor), and the roles of people who live in the economy.
Benefits and problems of each economic type will also be discussed.
Traditional Economies are found in some parts of Africa and South America. In these economies, people do not use technology and the men and women are given different economic roles and tasks. The people who live in traditional economies do not change their roles and tasks, they value their traditions.
In Traditional Economies, people use only the resources they have available to them to produce the necessities of life. They do not regularly trade with other countries or groups to get new things or new technology for their country or group. Some nomadic tribes in Siberia have this type of economy, and must frequently move from remote location to remote location to survive and find food for their animals.
Groups make economic decisions based on their custom or tradition. Children learn skills from their parents, and continue to hand down the skills and traditions when they become adults. Most of the resources were owned by the group rather than the individual. The land belongs to the tribe rather than individuals within the tribe. Economic decisions are always based on traditional and religious beliefs.
In Traditional Economies, age is highly respected and the elders have the most power. They are the main source of decision making and teach what they know to all the others. However, modern technology and a more global economy have forced many Traditional Economies to change in recent years.

The Command Economy (which is sometimes called the Centrally Planned Economy) is an economic system in which all economic decisions are made the government, which determines what kind of goods and services to produce and how they are to be priced. The government owns most means of production in this type of economy.
A command economy is one in which a central authority (who is often a dictator!) has control of the resources of the economy and makes most of the economic decisions. In most cases, those leaders who control the command economy take most of the profits for themselves, and leave very little the rest of the people in the country or group.
A command economy is also sometimes called a planned economy. The most important aspect of this type of economy is that all major decisions related to the production, distribution, commodity and service prices are made by the government.
The Command Economy is government directed, and what the people of the country really want is not often considered when the government makes decisions. This type of economy lacks the kind of flexibility that is present a market economy, and because of this, the command economy reacts more slowly to changes in consumer needs and fluctuating patterns of supply and demand.
On the other hand, a planned economy tries to use all available resources for developing production instead of spending the resources for advertising or marketing.
Today, countries with dictatorships like Cuba and China have pure command economies because they government controls absolutely every part of the economy. Command economies are usually found in countries that are considered communist or socialist.

A Market Economy is a type of economy that operates by voluntary exchange in a free market, and is not planned or controlled by a government at all. It is sometimes called a capitalist economy.
In a market economy, national and state governments play almost no role. Instead, consumers and their buying decisions drive the economy. In this type of economic system, the decisions of investors, consumers, and producers play a major role in deciding the right path for a country’s economic development.
In a market economy, the government does not give assistance or advantages to any certain industry. The government cannot control the price of goods or services, and does not regulate any safety, environmental or health rules for any businesses.
The absence of central planning is one of the major features of this economic system. Market decisions are mainly controlled by supply and demand. The role of the government in a market economy is to simply make sure that the market is stable enough to carry out its economic activities properly.
In a pure market economy, individuals and businesses have the freedom to make all their own economic decisions with absolutely no government interference. There is no pure market economy in our world today (such a place would probably be very risky and dangerous!).

A Mixed Economy is an economic system that allows for a mixture of businesses, some of which are privately owned, and some that are publicly owned. The United States, and most industrialized nations, have this type of economy.
A mixed economy can be a combination of two or the three basic types of economies. A mixed economy often combines elements of both the planned and the market economies into one system. This means that certain features from both market and planned economic systems are taken to form this type of economy.
For example, in the United States, businesses operate privately based mostly on supply and demand, but the government regulates safety and health issues for all businesses. Citizens must follow these laws that are set by the government, although they can also make many choices on their own.
This system exists in many countries where neither the government nor the businesses control all the economic activities of that country – both sectors play an important role in the economic decision-making of the country. In a mixed economy there is flexibility in some areas and government control in others. Mixed economies include both capitalist and socialist economic policies and often occur in societies that seek to balance a wide range of political and economic views.