Economic Systems

• Traditional economy


  A system that relies on customs, history, and time-honoured beliefs. Tradition guides economic decisions such as production and distribution.
• Traditional economies


  • Societies depend on agriculture, fishing, hunting, gathering, or some combination of them
  • They use barter instead of money
• Characteristics of Traditional Economics


  • Resources owned are passed from one generation to the next
  • There is no formal government
  • Private individuals own resources
  • The allocation of resources is decided by tradition
  • There is no money so trading is done by barter
  • The economy is a closed economy which means there is no trade with people outside
• Command or planned economy


  The government controls all major aspects of the economy and economic production. The government decides what to produce, how to produce goods and how to distribute goods and services within the economy.
• Characteristics of a Planned Economy

  • The state owns all factors of production
  • The government assumes full responsibility for production
  • There is no private sector
  • All workers are employed by the state
  • There is restricted choices for the consumer since the government will not produce a variety of goods/services
• Free market economy


  Private individuals allocate the resources. The economy is ruled largely by the private sector as it relates to resource ownership.
• Effective demand


  The willingness and ability to purchase a good or service
• Latent demand


  A willingness to produce a good or service which is not backed by the ability to do so
• Features or characteristics of a Free Market Economy


  • Private individuals own all Factors of production
  • The government assumes the responsibility of making laws and providing infrastructure
  • Resources are allocated through the price mechanism
  • There is freedom of choice for the consumer
• Mixed economy


  The free market is allowed to operate as a part of the economy and the government provides essential goods and services as well as regulation of the free market. Mixed economies start from the basis of allowing private enterprises to run most businesses.
• Characteristics of a mixed economy

  • Allowing supply and demand to determine fair prices
  • The protection of private property
  • Innovation being promoted
  • Standards of employment
  • The limitation of government in business yet allowing the government to provide overall welfare
  • Market facilitation by the self-interest of the players involved