-TYPES OF ECONOMY-

AN OVERVIEW OF THEIR
CHARACTERISTICS
 TYPES OF ECONOMY- AN OVERVIEW OF THEIR CHARACTERISTICS -

Table of Contents

1. Traditional Economy………………………………………………3
2. Command Economy……………………………………………….5
3. Market Economy……………………………………………………6
4. Mixed Economy……………………………………………………..7
5. Bibliography…………………………………………………………..9

2
 TYPES OF ECONOMY- AN OVERVIEW OF THEIR CHARACTERISTICS -

Traditional Economy
What Is a Traditional Economy?
Let's imagine you and your spouse decide to take a vacation to some far off
destination. You decide to go to a third world country so that you can experience life from a
different perspective. You want to experience a place where the people have strong customs
and traditions and monetary status is not significant. What you are looking for is a place that
has a traditional economy. So, what exactly is a traditional economy? Well, a traditional
economy is that in which customs, traditions, and beliefs are rich in developing the goods
and services for the area. In other words, a traditional economy is one that is built around
the way a society lives. The goods and services are determined based on the livelihood of
the people.
Definition:
A traditional economy is a society that relies on customs, history, and time-honored
beliefs. They guide economic decisions such as production and distribution. Traditional
economies depend on agriculture, fishing, hunting, gathering, or some combination of the
above. It uses barter instead of money.

Characteristics of a Traditional Economy

Now that we know that a traditional economy is built upon traditions, customs, and beliefs,
let's look at some other factors that contribute to this type of economy.

1. Traditional economies are often based on one or a few of agriculture, hunting,

fishing, and gathering.
2. Barter and trade is often used in place of money.
3. There is rarely a surplus produced. In other words, most of the goods and services
are fully used.
4. Often, people in a traditional economy live in families or tribes.
5. Societies may follow herds of animals in order to hunt and sustain those in the
traditional economy.
6. Many people progress from hunters to farmers where they can place permanent
structures and start a society.

Historic Traditional Economies

Because these subsistence economies are vulnerable to external influences, they are
becoming more scarce around the world. The indigenous people of North America once
existed on a traditional economy that centered around hunting, fishing, and gathering. Once
European colonists began arriving, the subsistence economy suffered great losses. Not only
was the European market economy stronger, but the colonizers brought war, disease, and
genocide. It wasn’t long before the traditional economy of Native Americans gave way to
money instead of trade and began to incorporate newer technology and goods, like metal
and guns.

3
 TYPES OF ECONOMY- AN OVERVIEW OF THEIR CHARACTERISTICS -

Advantages Of A Traditional Economy

It may seem that this type of economy is not very advantageous, but its members do
benefit in several ways. The first of these benefits is that people within the society
understand what their production roles are. This understanding creates less competition
among individuals because they understand what resources they will receive for their
services. Because social roles are based on local customs, members of traditional economies
accept that their position has contributed to maintaining a functioning society for centuries.
In addition, oftentimes economic decisions are made by the community as a whole or by a
family or tribal leader. Another often overlooked advantage to the traditional economy is
that it is less environmentally destructive than industrial societies.

Disadvantages Of A Traditional Economy

As with any economic structure, traditional economies also exhibit several
disadvantages. Because of its reliance on natural settings, unexpected weather changes can
have drastic results on productivity. Natural disasters like drought, flooding, and tsunami cut
the amount of goods produced. When this happens, not only does the economy suffer, but
the people too. Another disadvantage of traditional economies is their vulnerability to bigger
and richer countries, which usually have market economies. These wealthier nations may
often impose their industries within countries of traditional economies, which can have a
negative impact on the environment. For example, oil drilling endeavors may benefit the
wealthy nation and contaminate water and soil of the traditional country. This
contamination may further reduce production output.

4
 TYPES OF ECONOMY- AN OVERVIEW OF THEIR CHARACTERISTICS -

Command Economy
In terms of economic advancement, the command economic system is the next step up
from a traditional economy. This by no means indicates that it is fairer or an exact
improvement; there are many things fundamentally wrong with a command economy.

Centralized Control: The most notable feature of a command economy is that a large part
of the economic system is controlled by a centralized power; often, a federal government.
This kind of economy tends to develop when a country finds itself in possession of a very
large amount of valuable resource(s). The government then steps in and regulates the
resource(s). Often the government will own everything involved in the industrial process,
from the equipment to the facilities.

Supposed Advantages: You can see how this kind of economy would, over time, create
unrest among the general population. But there are actually several potential advantages,
as long as the government uses intelligent regulations. First of all, a command economy is
capable of creating a healthy supply of its own resources and it generally rewards its own
people with affordable prices (but because it is ultimately regulated by the government, it
is ultimately priced by the government). Still, there is often no shortage of jobs as the
government functions similarly to a market economy in that it wants to grow and grow
upon its populace.

Hand In The Cookie Jar: Interestingly – or maybe, predictably – the government in a

command economy only desires to control its most valuable resources. Other things, like
agriculture, are left to be regulated and run by the people. This is the nature of a command
economy and many communist governments fall into this category.

Socialism is a type of command economic system. Historically, the government has assumed
varying degrees of control over the economy in socialist countries. In some, only major
industries have been subjected to government management; in others, the government has
exercised far more extensive control over the economy.
The classic (failed) example of a command economy was the communist Soviet Union. The
collapse of the communist bloc in the late 1980s led to the demise of many command
economies around the world; Cuba continues to hold on to its planned economy even
today.

5
 TYPES OF ECONOMY- AN OVERVIEW OF THEIR CHARACTERISTICS -

Market Economy
A market economy is very similar to a free market. The government does not control vital
resources, valuable goods or any other major segment of the economy. In this way,
organizations run by the people determine how the economy runs, how supply is
generated, what demands are necessary, etc.

Capitalism And Socialism: No truly free market economy exists in the world. For example,
while America is a capitalist nation, our government still regulates (or attempts to
regulate) fair trade, government programs, moral business, monopolies, etc. etc. The
advantage to capitalism is you can have an explosive economy that is very well controlled
and relatively safe. This would be contrasted to socialism, in which the government (like a
command economy) controls and owns the most profitable and vital industries but allows
the rest of the market to operate freely; that is, price is allowed to fluctuate freely based
on supply and demand.

Market Economy And Politics: Arguably the biggest advantage to a market economy (at
least, outside of economic benefits) is the separation of the market and the government.
This prevents the government from becoming too powerful, too controlling and too similar
to the governments of the world that oppress their people while living lavishly on
controlled resources. In the same way that separation of church and state has been to vital
to America’s social success, so has a separation of market and state been vital to our
economic success. Yes, there is something wary about a system which to be successful
must foster constant growth, but as a result progress and innovation have occurred at such
incredible rates as to affect the way the world economy functions.

6
 TYPES OF ECONOMY- AN OVERVIEW OF THEIR CHARACTERISTICS -

Mixed Economy
A mixed economy is defined as an economic system consisting of a mixture of
either markets and economic planning, public ownership and private ownership,
or markets and economic interventionism. However, in most cases, "mixed economy" refers
to market economies with strong regulatory oversight and governmental provision of public
goods, although some mixed economies also feature a number of state-run enterprises.
In general the mixed economy is characterised by the private ownership of the means of
production, the dominance of markets for economic coordination, with profit-seeking
enterprise and the accumulation of capital remaining the fundamental driving force behind
economic activity. But unlike a free-market economy, the government would wield indirect
macroeconomic influence over the economy through fiscal and monetary policies designed
to counteract economic downturns and capitalism's tendency toward financial
crises, unemployment, and growing income and wealth disparities, along with playing a role
in interventions that promote social welfare. Subsequently, some mixed economies have
expanded in scope to include a role for indicative economic planning and/or large public
enterprise sectors.
In reference to post-war Western and Northern European economic models, as championed
by Christian democrats and social democrats, the mixed economy is defined as a form of
capitalism where most industries are privately owned with only a minority of public utilities
and essential services under public ownership. In the post-war era, European social
democracy became associated with this economic model.
Economies ranging from the United States to Cuba have been catalogued as mixed
economies. The term is also used to describe the economies of countries which are referred
to as welfare states, such as the Nordic countries. Governments in mixed economies often
provide environmental protection, maintenance of employment standards, a
standardized welfare system, and maintenance of competition.
As an economic ideal, mixed economies are supported by people of various political
persuasions, typically centre-left and centre-right, such as social democrats or Christian
democrats. Supporters view mixed economies as a compromise between state socialism and
free-market capitalism that is superior in net effect to either of those.
Etimology
There is not one single definition for a mixed economy, there are generally two major
definitions, one being political and the other apolitical. The political definition of mixed
economy refers to the degree of state interventionism in a market economy, portraying the
state as encroaching onto the market under the assumption that the market is the "natural"
mechanism for allocating resources. The political definition precludes an extension to non-
capitalist systems and is concerned with public policy and state influence in a market
system, whereas the apolitical definition relates to patterns of ownership and management
of economic enterprises in a society. The apolitical definition of mixed economy refers to a
mix of public and private ownership of enterprises in the economy and is unconcerned with
political forms and public policy.

7
 TYPES OF ECONOMY- AN OVERVIEW OF THEIR CHARACTERISTICS -

The mixed economy is most commonly associated with social democratic policies or
governments led by social democratic parties. However, given the broad range of economic
systems that can be described by the term, most forms of government are consistent with
some form of mixed economy.
Benefits of a Mixed Economy: In the most common types of mixed economies, the market is more or
less free of government ownership except for a few key areas. These areas are usually not the
resources that a command economy controls. Instead, as in America, they are the government
programs such as education, transportation etc. While all of these industries also exist in the private
sector in America, this is not always the case for a mixed economy.

Disadvantages of a Mixed Economy: While a mixed economy can lead to incredible results (America
being the obvious example), it can also suffer from similar downfalls found in other economies. For
example, the last hundred years in America has seen a rise in government power. Not just in
imposing laws and regulations, but in actually gaining control, becoming more difficult to access
while simultaneously becoming less flexible. This is a common tendency of mixed economies.

8
 TYPES OF ECONOMY- AN OVERVIEW OF THEIR CHARACTERISTICS -

Bibliography

https://blog.udemy.com/types-of-economic-systems/

https://en.wikipedia.org/wiki/Economic_system

http://www.shmoop.com/economic-systems/types.html

https://owlcation.com/social-sciences/econsys_3econ_edu

http://www.economicsonline.co.uk/Competitive_markets/Economic_systems.html