Types of Economic Systems
While there are many terms that are used to describe the types of economies that
exist in the world, most economists agree that there are four major types of
economic systems.
You may remember that earlier in the course you learned about the factors of
production. To better understand the 4 types of economic systems listed below, you
may want to go back and review those factors of production by clicking on the arrow
below.
TYPES OF ECONOMIC SYSTEMS
Definition
Associated
Terms
Examples in
Practice
1) Market economy
An economic system
in which individuals
own and operate the
factors of production.
Free enterprise
Capitalism
United States
Great Britain
Japan
2) Command economy
An economic system
in which the
government owns
and operates the
factors of production.
Socialism
Communism
Cuba
China
Laos
3) Traditional economy
An economic system
based upon customs
and traditions.
Economy is based
upon agriculture and
hunting.
NonIndustrialized
Agrarian
societies
Chad
Haiti
Rwanda
4) Mixed economy
An economic system
that has features of
both market and
command
economies.
See note below concerning mixed
economies.
In reality there are no pure market economies, nor are there any pure command
economies. For example, even in the United States, where free enterprise reigns, the
government plays a major role in the economy. Minimum wages, social security, and
regulatory policies are examples of government involvement.
In China, for example, some private ownership of businesses is allowed, however the
government still maintains tight control over the factors of production and prices.
While we could say that both the United States and China are mixed economies because
they contain both market and command economic features, to do so would be misleading
because the role that the respective governments play in the economy are quite different.