Types of economic system
An economic system refers to the structure in society within which we make decision about:
(a) What to produce (goods and services)
(b) How to produce the goods and services
(c) Where to produce
(d) How to allocate and distribute the goods and services to meet the demands.
The four main kinds of economic system are:
(1) Traditional (subsistence) Systems
(2) Market or Commercial Systems
(3) Centrally Planned System
(4) Mixed Economic Systems
Subsistence Economic Systems:
An economic system under which people produce just enough goods to feed their households with very little left for sale or for exchange in the market.
Characteristics of Subsistence Economic Systems:
(a) Production is geared towards subsistence (the family) and basic survival.
(b) Trade is mainly by barter system (direct exchange of goods and services).
(c) Market and money are of little importance.
(d) Custom and traditions are major influences on what is produced and how products are allocated.
Market (Capitalist) Economic Systems:
Under Capitalist economic systems, decisions about what, how and where to produce a particular good are determined by market conditions such as supply, demand and price.
Characteristics of Capitalist Economic Systems:
(a) Production is large-scale and geared towards markets.
(b) The market (price) determines allocation and use of society’s resources.
(c) The price mechanism determines supply and demand of goods and services.
(d) Competition among producers work to ensure stable and lower prices for consumers.
Drawbacks of the Market System:
a) Since market does not exist for some resources, only some environmental resources might be used and exchanged in the society.
b) The long cycle of production of some crops (e.g. Timber and tree crops) does not allow for rapid adjustment of demand and supply so gluts and shortages often follow in succession.
c) Market forces do not relieve resources problems when price decreases spur on demand but
(a) What to produce (goods and services)
(b) How to produce the goods and services
(c) Where to produce
(d) How to allocate and distribute the goods and services to meet the demands.
The four main kinds of economic system are:
(1) Traditional (subsistence) Systems
(2) Market or Commercial Systems
(3) Centrally Planned System
(4) Mixed Economic Systems
Subsistence Economic Systems:
An economic system under which people produce just enough goods to feed their households with very little left for sale or for exchange in the market.
Characteristics of Subsistence Economic Systems:
(a) Production is geared towards subsistence (the family) and basic survival.
(b) Trade is mainly by barter system (direct exchange of goods and services).
(c) Market and money are of little importance.
(d) Custom and traditions are major influences on what is produced and how products are allocated.
Market (Capitalist) Economic Systems:
Under Capitalist economic systems, decisions about what, how and where to produce a particular good are determined by market conditions such as supply, demand and price.
Characteristics of Capitalist Economic Systems:
(a) Production is large-scale and geared towards markets.
(b) The market (price) determines allocation and use of society’s resources.
(c) The price mechanism determines supply and demand of goods and services.
(d) Competition among producers work to ensure stable and lower prices for consumers.
Drawbacks of the Market System:
a) Since market does not exist for some resources, only some environmental resources might be used and exchanged in the society.
b) The long cycle of production of some crops (e.g. Timber and tree crops) does not allow for rapid adjustment of demand and supply so gluts and shortages often follow in succession.
c) Market forces do not relieve resources problems when price decreases spur on demand but