We generally identify four different types of economies viz. market economy, command/Planned economy, mixed economy. and traditional economy. Let us examine here how these economies function.
What is a market economy?
A Market economy is an economy in which most goods and services are produced and distributed through free markets wherein the market determines investments, production, distribution, and decisions without the intervention of the government. The government provides goods and services that markets are unable or unwilling to provide such as a National defence system, highways, Railways, Police, fire departments, etc.
What is a command or planned economy?
The command economy is a core feature of a communist society. Here the government determines investments, production, distribution, and price at which the goods are offered for sale. The benefits under the command economy are low levels of inequality and unemployment besides the common good replacing profit as the primary incentive. The major disadvantage of this system is lack of competition and lack of efficiency.
What is a Traditional economy?
A traditional economy is an economic system that is built around the way a society lives. The goods and services are determined based on traditions, customs, and beliefs. Countries that use this type of economic system are often rural and depend on agriculture, fishing, hunting, gathering, or some combination of the above. In the traditional economy, people use bartering in place of money. The system is also known as a subsistence economy.
Mixed economy:
A mixed economy is defined in many ways. In simple language, we may describe it as a system where the features of a free market economy, command economy, and traditional economy co-exist.
A mixed economy has the advantages of all the above three economies while suffering from a few of the disadvantages of the above systems.
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