A system of resource allocation, production, distribution of services and goods within the society is an indication of the economic system. It encompasses the combination of various agencies, institutions, entities, consumption patterns and processes of decision making which comprise of the economic structure of the given society. The production mode is a related concept. All the systems of the economy have three fundamental question which is, what to produce, how to produce it, in what magnitudes and who is the receiver of the output of production. Economists recognize four significant economic systems of which are, mixed, market, traditional and command but they are not in complete agreement on the system which best discourses the defy of scarcity (Mohamed, 2016). The essay, therefore, seeks to illustrate different economic systems and their effectiveness.
Mixed Economic System
The mixed system of the economy consists of a mixture of either market, private and public ownership or economic interventionism and markets. In most instance, however, mixed economy denotes to market parsimonies which have strong regulatory oversights and government provision of the public goods even though some mixed parsimonies also feature numerous state-run establishments.
Mixed economies are characterized by sequestered possession of the ways of production, the domination of the marketplaces for economic synchronization, with the profit-seeking establishments and capital accretion remaining the vital driving force behind the economic bustle (Orr, 2012). Governments exert indirect macroeconomic impact over the economy through monetary and fiscal policies premeditated to thwart economic recessions and the capitalism propensity towards unemployment, financial crises and the growing wealth and income disparities along with playing a protagonist in the interpolations which stimulate social welfare. Subsequently, some mixed parsimonies have extended their scope to embrace the role for investigative economic preparation or huge public initiative sectors (Mohamed, 2016).
According to Rome 2012, a mixed economy is a form of capitalism whereby most establishments are privately possessed with the marginal of public utilities and essential facilities under public proprietorship. The economies of Cuba and the United States are classified as mixed parsimonies. The term depicts the economies of republics that are denoted as welfare nations for example Nordic countries. Environmental protection, competition maintenance, employment standards maintenance and welfare system standardization are the services provided by the governments in the mixed economies. Most often, mixed economies are supported by the Christian Democrats or the Social Democrats. Supporters view mixed economies as a concession between the capitalism of free market and state socialism which is grander in the net outcome to either of those (Rome, 2012).
Traditional Economic System
The traditional economic system involves traditions, customs, and beliefs in the determination of services and goods to be created by the community. More often, it is dependent on gathering, agriculture, hunting, and fishing or can be a combination of all of the above. It is also denoted as subsistence economy. Batter trade may be involved in this type of economy instead of the currency.
Traditional economies are usually underdeveloped and undergo minimum economic growth. It is dominant in the countries that are farm-based and in the rural areas. The production of surplus is limited and excess goods are often given to the landowner r the ruling authority. An example of traditional economies is those of tea plantations of South India and Inuit (Rome, 2012).
The traditional economy is considered underdeveloped or primitive as it has tools or technologies which are perceived as outdated. The individuals living in such an economy are perceived as poor even if they manage to meet their daily needs with total satisfaction. However, such an economy has an advantage of being less environmentally destructive.
Their popularity is high in developing countries of the world or emerging markets. For instance, they are rampant in Asia, Latin America, Africa and the Middle East. However, some form of traditional economies is virtually throughout the globe. It is expected that traditional economies will ultimately evolve into command, mixed or market economies (Orr, 2012).
Market Economic System
The market economic system is a type of economy whereby decisions regarding the production, investment and distribution are solely based on the market and are determined by demand and supply, while the prices of services and goods are defined by the system of the free price. The significant defining factor of the market economy is the decision of investment and the allocation of the goods of the producer which are chiefly made by the cooperative concession through the markets.
Market economies may range from various types of state-owned interventionist variants to regulated markets. Market economies, in reality, are non-existent in pure form since the governments and the societies all control them to erratic degrees.
Logically, the market parsimonies do not presume the actuality of the private proprietorship of the ways of creation. The market economy does encompass a mix of different forms of cooperatives or autonomous agencies of the state which require and exchange the capital merchandises in the capital arcades. All these utilize the market determined free price system for the allocation of the capital-labor and goods. Many variations of the market socialism exist some of which involve employee possessed enterprises centered on self-management, and public ownership of the production means in which capital merchandises are allotted through markets (Mohamed, 2016).
Command Economic System
In a command economy, the big decisions are made at the center by the governments. Main decisions for example resource allocation such as oil, capital, and labor are controlled. The government takes such decisions in the command economy. The major advantage of a command frugality is that the forecasting body has impeccable information and can make perfect decisions than in the market economy. Command economies have a disadvantage of adopting to the changes in case of the variations in the production process. It has no competition, and the innovation pedigree is low (Orr, 2012). The countries which encompass this form of system is the North Korea, Cuba, Burma, and Liberia. China and the Soviet Union have moved to the mixed economy even though formerly their economy was of the command system.
Even though all the economic systems have the positives and the negatives, Mixed Economic system is the best, and my company will be established in such an environment. The environment provides a perfect space for growth and expansion. The fact that prices are determined by the forces of demand and supply provides an opportunity for success.
Mohamed Nour, S. (2016). Economic Systems of Innovation in the Arab Region. Houndmills, Basingstoke, Hampshire: Palgrave Macmillan.
Orr, T. (2012). Understanding Economic Systems. New York: Rosen Publishing Group, Inc.
Rome, G. (2012). Important Economic Systems. New Delhi: Orange Apple.
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