Economic Systems

An economic system refers to the management of resources through which people use to manufacture goods and services. Every economic system incorporates three different systems of the economy. These systems differ from one another through their response to the economic challenges. These systems of the economy seek to respond to questions what, How, and who, In the economy.

Types of Economic Systems

One of the most common systems of the economy is the free market economy. In this system, the economy of the market is dominated by private investors. The economy experiences a lot of economic freedom and is extremely capitalist. Free market economy provides the consumers with the authority and freedom of choice on how to spend their income. The government intervention is very minimal in free market economy and therefore investors have the freedom of choice on what to produce while the consumers respond to basic economic challenges. Public needs are therefore satisfied by the available firms in the market set up which are solely based on the demand and supply of the products and services.

Other types of economic systems involve planned economic and mixed economy. In both systems, the government plays significant role in what is produced in the economy. However, unlike planned economy where everything in the market setup is regulated by the government, mixed economy allows consumers to determine what should be produced through demand pull. Nevertheless, the government bears all rights to determine the quality of the products produced in the economy.

Merits and Demerits of the Economic Systems

The economic system adopted in every economic set up has got both merits and demerits to the economy. For instance, planned economic system is very beneficial to the consumers since the government regulates all the products produced thus ensuring no defect products supplied to the consumers. Nevertheless, the consumers will have to pay high taxes charged by the government. Further, since the production is not based on the demand, consumers are likely to face frequent shortages in the economy.

On the other hand, since free market economy is based on demand and supply, consumers are assured of continuous supply of goods and services in the economy at cheap prices. However, since the firms have the decision on what to produce, consumer may end up been supplied with defective products.

Though more similar to planned economy, mixed economic systems has more economic demerits related to free market economy. Tax evasion and price fluctuations are most common economic challenges in the mixed economy which hinders developments as well as exploits consumers.

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