Berbice Educational Institute

Business Education Department

Subject: Business Studies

Grade 10

Section 1: The Nature of Business

Handout #4

Topic: Economic systems:

Subtopic Types of economic systems.

Definition of Economic system

Economic system refers to the way in which a society allocates scare resources.

Types of economic systems:

1. Traditional or Subsistence economy
2. Command/ planned economy/ socialist states
3. Free market economy
4. Mixed economy.

1. Traditional or subsistence economy:

An economy based on traditions and customs where nearly the whole population is engaged in
agriculture, producing just enough food for their own needs. In this type of economic system,
there I no specialization and people live in family groups. They produce just enough food to
survive, so rarely they have surpluses for exchange.

Advantages Disadvantages
The advantages and disadvantages of the barter system.

2. Command/ planned economy/ socialist states: this type of economic system allow for
economic resources to be owned, planned and controlled by the state. In other words all
economic decisions are made by the government.
All resources are allocated to industries and products as decided by the government. These
might include health, education and social services. More of the country’s resources will be
devoted to these services. On the other hand the state might decide that defense, space
exploration and nuclear electricity are the main priorities, and so more resources will be
steered towards these industries.

Advantages Disadvantages
 ● The basic needs of the population are
met.
● There is little inequality of wealth and
income
● There is no wasteful competition as
the state controls production
● There are no private monopolies
● Central state planning should allow
resources to be allocated efficiently.
● Private firms do not exist to compete
with each other
● There is little incentive to work hard
to earn more or make profits.
● State central planning is often
inaccurate, inefficient and not geared
towards people’s needs.
● There’s very limited consumer choice.

3. Free market economy/ capitalist state: within this types of economic system economic
resources are owned largely by the private sector with very little state intervention. This
types of economic system is different from a planned system, in that nearly all resources
are privately owned. Prices are determined by the market forces of supply and demand
and firms are motivated by the desire to make profits, and there is little government
intervention to tax the highly paid people or control monopoly businesses. Privatization
of state corporations is a sign that an economy is moving more towards a capitalist or free
market system.

Advantages
● The incentive to work is high
● The profit motive encourages firms
to be efficient
● There is competition between
private firms which result in greater
efficiency
● Consumers choose how to spend
their money and this encourages
firms to produce more of those
goods in high demand.
Disadvantages
● There are great inequalities of
income and wealth-relative poverty
will be a major issue.
● Wealthy people have much more
economic power than the poor
● Businesses may be encouraged to
reduce competition to increase
profits
● Some people’s basic needs may not
be met if they are very poor.

4. Mixed economy system: this types of economic system allows for economic resources
to be owned and controlled by both the private and public sectors. Most of the world’s
economies are now described as mixed economies. This is because the combine-or are a
mixture of- private sector and public sector ownership and control resources. The public
sector- managed by the government provides those goods and services that cannot easily
or effectively be provided by the private sector businesses. National defense, law and
 order, coastguard services, public health, hospitals and schools. Private sector-the
production and distribution of most customer goods and services such as cars, banking,
hotels, computer and so on.
Advantages
● The basic needs of the population
are met.
● There is no wasteful competition as
the state controls the provision of
social services.
● Central state planning should allow
resources to be allocated efficiently
● The incentive to work is high
● The profit motive encourages firms
to be efficient
● There is competition between
private firms which result in greater
efficiency
● Consumers choose how to spend
their money and this encourages
firms to produce more of those
goods in high demand.
Disadvantages
● There is some degree of inequality
of wealth and income
● These are some instances of private
monopolies.
● State central planning is often
inaccurate, inefficient and not
geared towards people’s needs.
● Wealthy people have much more
economic power than the poor
● Businesses may be encouraged to
reduce competition to increase
profits

NB: it should be noted that the advantages and disadvantages of mixed economic
systems are a combination of the advantages and disadvantages of the Command and
free market economies.
Class Activity
a) Explain the following concepts:
● Allocation
● Inequality
b) State three advantages and disadvantages of traditional/ subsistence economies.
c) Copy and complete the table, state two countries that have the type of economic systems
given below.
Economic system Countries
1. Traditional/subsistence 1. 2.

2. Planned/ command 1. 2.
economies
 3. free market economy
1. 2.
4. Mixed economy
1. 2.

After completing your class activity please submit before the end of the week for marking.