WHAT IS AN ECONOMIC SYSTEM?
The economic system refers to a system through which the government of a country coordinates, allocates and distributes it's available economic resources. Economic system coordinates the factors of production which are land, labour, capital and physical capital. An economic system encompasses institutions, agencies, decision making processes and patterns of consumption.
TYPES OF ECONOMIC SYSTEM
Why basically there are many economic system in the world, each having different characteristics. There are however 4 major Economic systems which are;
- Traditional Economy.
- Command Economy.
- Mixed Economy.
- Market Economy.
TRADITIONAL ECONOMY
The traditional Economic system is the oldest form of economic system. it is most predominate in third world countries, where economic activities are mostly farming and other traditional income generating activities.
Advantages
- There is strong social network
- Basic economic questions are answered by traditions and tradition.
Disadvantages
- There is insufficient production and distribution of goods and service.
- There is no room for technological growth.
*There is little or no room for intellectual growth.
COMMAND ECONOMY
This is also referred to as a regulated or controlled economy. In this economic system the government controls the means of production and distribution of economic resources. The economic questions of what to produce, how to produce and for whom to produce are answered by the goverment.
Examples of countries that practice this kind of economic system are the former defunct Soviet Union, China and the present North Korea.
Advantages
- Welfare of the citizens are highly placed first.
- There is no industrial unrest like strikes and the rest are avoided.
- Wasteful competition are avoided.
Disadvantages
- Excess government control kills competition in the economy.
- No freedom of choice for the consumsers.
MIXED ECONOMY
In mixed economy, economic questions of what to produce, for whom to produce and how to produce are answered jointly by both private individuals and the government. The main motive of the mixed economic system is to control the effects of unchecked capitalism. It allows economic freedom but at the same time government has a huge role to play in regulating the economy.
The mixed economic system combines both the features of capitalist and socialist economy. There is joint ownership of economic resources,
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Examples of countries that practice a mixed economy are. Nigeria, USA and The UK.
Advantages
- There is less exploitation of the citizens.
- both the government and private individuals can cooperate in rendering of services to the general public for example provision of health care, school and electricity.
Disadvantages
- inequitable distribution of the economy might occur.
- Government intervention might kill the spirit of enterprise.
MARKET ECONOMY
This is also referred to as a market economy or laise. In this type of economy, economic questions like what to produce, how to produce and for whom to produce are answered by mostly private individuals. The private individuals control the economic decisions as well as control all the production and allocation of economic resources. The interaction between the forces of demand and supply plays a major role in determine the prices of goods and services, as there is little to no government intervention.
Advantages
- There is no government intervention.
- There is efficiency in production since resources are allocated to the most efficient level of production.
- The price mechanism plays an important role in determining the prices of goods and services.
- Consumers satisfaction is the top most priority
Disadvantages
- This system allows for exploitation of consumers since the owners of the economic system are more focused on making profits.
- This economic system allows for economic inequality as the rich keeps getting richer while the poor keeps getting poorer.