Economic Systems
To understand each economic system, remember that a nation must answer the three questions below:
1. What goods and services will we produce?
2. How will we produce those goods and services?
3. Who gets the goods and services that are produced?
Traditional System
When it comes to a traditional system, the answers to the all three questions are answered by tradition. What is made, how it is made and who gets the products is resolved by the customs and habits of the past. The examples of this type of economic system are the Aborigines in Australia or the Inuit in Canada.
Command System
A command system is an economic system that is controlled through a central planning committee within the government. Most productive resources are controlled by the government and the decisions about how the resources will be used is determined by the government.
Mixed Economy
Some of the actions undertaken by a government are done to adjust the economic system in order to achieve the goals and desires of citizens. For example, a government program such as Social Security, as well as laws restricting child labor or a government-imposed minimum wage, reveal how Americans have modified their free enterprise economy.
Because of these adjustments, the United States has a mixed economy. In a mixed economy there is a large measure of free enterprise (private business operates in competition and largely free of state control), but there is some government intervention and regulation.
Free Market, Market or Capitalism
An economy that relies on a market system is dependent on everyone pursuing their own self-interest. The resources in a market system are owned by all of the buyers and sellers in a market. The decisions on how to use those resources are left up to individuals and businesses.