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Three Basic Economic Systems Economics Essay

An economic system is the construction of production, allocation of economic input, distribution of economic outputs and consumption of goods and services in an economy. Economics system can be refers to as the type of rules and schemes used by a group of people to exchange valued goods and services between different parties.

Economics systems are in place because of scarcity, economist must ask the following question in other to allocate resources like what to produce, how to produce, for whom to produce. Economic system to determine the allocation different forms command, market and mixed economy.


COMMAND ECONOMY: Is an economic system in which government controls all or most of the factors of production and makes most of the production decisions. Command economy exists when the government uses central planning to allocate resources and determine output among various distribution of the economy.

A command economic also denotes a communistic form of totalitarianism which is one, the basic of the political and economical control of the whole country. Under the economy system all decisions with regard to allocation of resources are allocated through the central planning committee. This committee decides on what to produce, the percentage of capital goods, and the proportion of resources to be devoted for consumer goods.

CAPITALIST ECONOMY: Refers to the basic economy system whereby private people own all the economic resources such as land and capital. Capitalist economy is also called market economy as all major decision relating to consumption and production are left to the market forces. In a capitalist economy private individuals are allowed to own and control resources. What determine resources allocation or what to produce is the price mechanism whereby the market forces of demand and supply and the free choice of consumers and producers determine how resources will be allocated.

MIXED ECONOMY: Is a situation whereby both private individual and government partake in seeking answers from the above economic question.


Command economy system


Citizens usually have relatively equal wealth.

Large gap between rich and poor.

Since the government controls all resources there is no

Competition and it result to no innovation.

There is plenty innovation due to competition.

Price is determined by the government (price regulation).

Price is determined by supply and demand (price mechanism).

The government owns and control resources.

Private firms and individuals own and control resources.

Since there is no competition products end up being sub


As a result of competition products are of high



The state modifies fly away want to consumers.

Distributes wealth equally among all people.

Only products that are required are produced hence, prevents production of socially undesired products.

Price of goods is determined by the centre government.

Individual wants and needs are address by the government.

There is price stable in the economic.

One advantage is that equality is focused on taking a big dump and getting everything out. The government tries to eliminate all private property and distribute its goods equally.

They are always a reduction on income inequality. Because on one individual own the means of production and therefore cannot surplus wealth at expanse of the majority.

There is no operation of consumers who pay a fair price for the goods thy purchase

There is lack of excess capacity and no over-production.

There is superior confidence of production of essential but non profitable goods and services.

Unemployment of labour and other factors is minimum.

The growth of private monopolies is checked. Since there is no want for profit maximization, there is no need for private monopolies which are out to take advantage of the consumers’ weak position.

A planned economy can ensure the continuous consumption of all available resources. If inaccessible and unresponsive to consumer demand.


Inefficient resource distribution, it has to do with surplus and shortage.

Critics argue that since in a planned economy prices are not allowed to float freely, there is no perfect mechanism to determine what is being produced in unnecessarily large amounts and what is being produced in insufficient amounts. They argue that efficiency is best achieved through a market economy where individual producers each make their own production decisions based on their own profit motive.

Critics of planned economies argue that planners cannot detect consumer preferences, shortages, and surpluses with sufficient accuracy and therefore cannot efficiently co-ordinate production (in a market economy, a free price system is intended to serve this purpose). For example, during certain periods in the history of the Soviet Union, shortages were so common that one could wait hours in a queue to buy basic consumer products such as shoes or bread. These shortages were due in part to the central planners deciding, for example, that making tractors was more important than making shoes at that time, or because the commands were not given to supply the shoe factory with the right amount of leather, or because the central planners had not given the shoe factories the incentive to produce the required quantity of shoes of the required quality. This difficulty was first noted by economist Ludwig von Mises, who called it the “economic calculation problem”. Economist János Kornai developed this into a shortage economy theory (advocates could claim that shortages were not primarily caused by lack of supply).


These 3 examples are the best summary economics system today keeping in mind that they are much complicated and largely based on assumption. It is also largely based on assumptions. It is also which system is best because they are only used depending on what the government hopes to achieve. Which one might say would be to achieve equality and stability no matter how low standards are or to realize full potential at the expense of others. In the modern society the capitalist system seems to be the most dominate with 80% of the world employing it, a general over look and the world, would suggest that capitalist countries are more advanced. This doesn’t make it an economic utopia as it has many setbacks but this is the same as with all economies.

In the present spade of globalization which is an off shut of capitalism in the world, seems to be in a more dominate or in a world dominated by a capitalist ideology. Socialism which is the main rival of the capitalism economy as faded out in the disintegrated of the Soviet Union the world seems to embrace the capitalism economy by Adam smith in the book ‘’wealth of nations’’. The capitalist system is not just living the means of goods and services in the hand of individuals.

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