ASSIGNMENT ON ECONOMIC SYSTEM

ALD 1101: INTRODUCTION TO BUSINESS

Faculty of Business, Department of Marketing
Name: Tarannum Tasneem
Batch: 05, Section: A
ID:20010786. Roll No: 2025171037
Session: 2019-20

ECOMONIC SYSTEM
Economics is the social science that studies the choices that individuals, businesses, governments
and entire societies make, as they cope with scarcity, and the incentives that influence and
reconcile those choices. An Economic System is the way a society organizes the production,
distribution, and consumption of good and services. There are 3 basic types of economic systems
that have to answer three basic questions: (1) What to produce?
(2) How to produce?
(3) For Whom to produce?
The way a society answers these questions determines its economic system.
Types of Economic Systems
Examples of contemporary economic systems include:
1. Traditional Economy
2. Command Economy
3. Market Economy
1. Traditional economic system
The traditional economic system is based on goods, services, and work, all of which follow
certain established trends. It relies a lot on people, and there is very little division of labor or
specialization. In essence, the traditional economy is very basic and the most ancient of the four
types. It often provides economic security and also tends to be sustainable because it grows
slowly. Traditional economy also tends to emphasize a relatively equal distribution of goods and
services. In terms of disadvantages, it rarely achieves the goals of economic freedom, economic
growth, and a high standard of living. It also tends to be resistant to change, technological or
otherwise. Hunting, fishing and farming are the main economic activities in such an economy.
2. Command economic system
In a command system, there is a dominant, centralized authority usually the government – that
controls a significant portion of the economic structure. Also known as a planned system, the
command economic system is common in communist societies since production decisions are the
preserve of the government. It can provide economic security and it also has the ability to adjust
rapidly to changing circumstances. Command economy has the ability to shift resources away
from one industry to another if needed. • On the other hand, it does not have in practice tended to
work out very well. The Soviet Union’s economy, for example, failed. It limits economic
freedom and provides little incentive to people to work hard. This kind of economy also fares
poorly in terms of economic efficiency. It is sometimes called communism.
3. Market economic system
Market economic systems are based on the concept of free markets. In other words, there is very
little government interference. The government exercises little control over resources, and it does
not interfere with important segments of the economy. Instead, regulation comes from the people
and the relationship between supply and demand. In this economic system, individuals decide
what to produce and what to buy. Buyers and sellers exchange goods and services on their own.
This kind of economy gives people strong financial incentives for producing goods that other
people want. They tend to be more efficient than traditional or command economies and give
people more economic freedom. They also have historically produced more rapid economic
growth than other kinds of economies. In terms of disadvantages, market economies do not do
very well in terms of economic security. Resource conservation is another challenge for market
economies.