Types of Economic Systems
Every economic system tries to predict and then meet human needs through the production and distribution of goods and services. The economic system is the mechanism that brings together natural resources, labour supply, technology and necessary entrepreneurial and managerial resources. The type of economic system, used by a nation is a result of political decision.
Economics is a science that analyses for what purpose society produces. The central economic problem is to reconcile the conflict between people’s unlimited demands and society’s limited ability to produce goods and services.
In a command economy a central planning office makes decisions on what, how and for whom to produce. There was extensive planning in Soviet bloc countries. The system was not regulated by prices. In recent years Russia and East-European countries moved away to more market-oriented economy.
In developed Western countries markets are to allocate resources. Pure market economy has no government intervention. Sometimes government limits profit of firms, controls prices and wages. Absolutely free market economy does not exist in the world. But in general, government regulation is kept on quite a high level.
Modern economies in the West are mixed – they rely mainly on the market but with a large dose of government intervention. Government does not regulate consumption, production and exchange of goods.
The economy of the USA proved to be a success for half a century. It is usually described as a capitalist economy. Most Americans perceive modern economic system as one which benefits millions of people not just a few. Government played an important role in American economy in different periods.
