Major Types of Economic Systems

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Differentiate among the major types of economic systems.
The roles that individuals, businesses, and government play in allocating a society resources depend on the society’s economic systems, the basic set of rules for allocating resources to satisfy its citizen’s needs. Economic systems are generally categorized in three major types as free market systems, planned systems and mixed economy.

The free market means that economic decisions are taken by private individuals and firms. Everything is owned and operated by private individuals. Capitalism and private enterprise are the terms most often used to describe the free market system. One in which private parties own and operate majority business and where competition, supply, and demand determine which goods and services are produced. For example, Hong Kong’s economy is 89.3% free. Income and corporate tax rates are extremely low. Business regulation is simple, and the labour market is highly flexible.

Planned economy is an economic system in which the central government makes all decisions on the production and consumption of goods and services. In such economies, central economic planning by the state or government controls all major sectors of the economy and formulates all decisions about the use of resources and the distribution of output. Planners decide what should be produced and direct lower-level enterprises to produce those goods in accordance with national and social objectives. Socialism lies somewhere between capitalism and communism, with a fairly high degree of government planning and some government ownership of capital resources. For example, The same is true of North Korea, which has an almost entirely state-run economy, as well as the same social programs mentioned for Cuba. Like Cuba, North Korea does not have a stock exchange.

A mixed economy is an economic system that includes a variety of private and government control, or a mixture of capitalism and socialism. There is not...
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