Economic Systems

The term economic system simply means the organization of economic

society with reference to the production, exchange, distribution and

consumption of wealth (Leańo, et al., 2012). The economic system is the means

through which society determines the answers to the basic economic problems

mentioned. There are four commonly used economic systems. These are:

1. Traditional Economy. It is also known as the subsistence economy. In this

type of economy, people produce goods and services for their own

consumption. Decisions are based on customs and traditions and the

production techniques are outmoded and sometimes obsolete.

2. Command Economy. Under this system, the government takes hold of the

economy of the State. The government does policy formulation, economic

planning and decision-making. It dictates on what to produce, how to produce

and for whom to produce. The system works based on the interest of the

country and not on the individual. In this case, the consumer could not choose

the goods and services he wanted. The government answers the major

economic questions through its ownership of resources and its power to enforce

decisions.

3. Market System - In a capitalistic system, business enterprises are owned and

controlled by private individuals. One of the major features of this system is

“free enterprise” meaning that any individual can engage in any enterprise,

which he thinks will yield him a profit in competition with other businesses.

Inherent in a market economy is individualism or “laissez-faire” which means

“let alone” or freedom from government control of business enterprise. Private

firms make the major decisions about production and consumption.

4. Mixed Economy - This is a system which is a mixture of the different types of

economy. The private capitalist and the government play a major role in solving

the basic problems of the economy for the benefits of the consumers. The

government sets laws and rules that regulate economic life, produces

educational and police services, and regulates pollution and business.