Types of Economic Systems
There are different types of economic systems, depending on the distribution of scarce resources in the market. The four existing economic systems include the traditional system, command system, market system, and mixed system. The study focuses more on the market and a mixed system.
The market system is also known as the free market economy, which means that unlike the command system, it is not regulated by the government. However, no market economy can be said to be free from regulation by the authorities since they help in protecting consumers against unfair exploitation. In the free market economy, one is free to produce what they want as long as the product is not illegal. The seller determines the price while the buyer how much they are going to pay (Agarwal, 2017). The advantages of the free market economy are that it gives a lot of incentive to entrepreneurs since they are allowed to charge the best prices for their products. The business persons get to produce that which is profitable to them, unlike in a command system where the government regulates what is to be produced. Another advantage is that there is an efficient use of resources due to the competition between businesses. The business persons still engage in continued research and development, which leads to growth in various industries as they all want to continue winning in the market.
The disadvantages of a free market economy are that businesses will not focus on corporate social responsibility, such as taking care of the disadvantaged in society since they focus on winning the market. Consumers are also at the risk of exploitation, especially where monopolies have been formed since they are in control of the market. The economic needs will still be highly placed than the social and human needs as everyone focuses on making profits. Financial markets are growing in terms of innovativeness as cryptocurrencies and bitcoins are introduced. The cryptocurrency is difficult to counterfeit hence an added advantage to the financial market (Bunjaku et al., 2017). The market economic system allows competition, and this can be seen in how the markets operate.
On the other hand, a mixed economic system is a combination of two systems that is command economy and the market economic system. The government controls some of the most sensitive areas, such as security and road systems (Agarwal, 2017). The other parts are free of government ownership and are controlled by the market forces of supply and demand. Most countries have a mixed economic system as it allows the government to control the markets while still giving people the freedom to do what they know best. Businesses are free to produce goods that are of benefit to the people. The advantages of this system are that businesses are allowed to run without the control of the government, which makes it possible to reduce costs due to increased efficiency. The government also gets a chance to meet the needs of the people, such as healthcare, since the economy is not totally out of its control. Besides, the government can redistribute income through the collection of taxes (Freeman, 2017). The mixed economy still has its disadvantages, such as the government may sometimes over-exercise its control over businesses or leave them unmonitored.
In conclusion, there are different types of economic systems, including the traditional system, command system, market system, and mixed system. The market system is also known as the free system, where the government does not interfere with the businesses. The mixed system is a combination of both the command and the market system.
References
Agarwal, P., (2017) Introduction to Economics: The Four Types of Economics, October 19, 2017.
Bunjaku, F., Gorgieva, O., & Miteva, E., (2017) Cryptocurrencies – Advantages and Disadvantages, Journal of Economics, 2 (1).
Freeman, J., (2017) Democracy and Markets: The Politics of Mixed Economies.