There are four main types of economies: traditional, command, market, and mixed economies. These different ways of producing and exchanging goods are embodied in different places across the world, and show that the world doesn’t necessarily follow one exact economic plan.
A traditional economy is based off the beliefs and customs of the people, and exchanges through bartering, the trade of goods without using money. This type of economy is usually used in under-developed regions that use antiquated forms of production. Economies like these are present in rural villages in India and South America that haven’t completely industrialized yet. This tends not to be the most effective economic form because of the lack of efficiency and minimal amount of growth available for the country.
A command economy, associated mainly with communism, is where government controls most of the economic decisions. Private property does not exist in these cases and the government controls things like people’s wages and the prices of goods. The most popular examples of this type of economy is North Korea and Cuba, however other countries such as Germany and the former Soviet Union attempted to establish this kind of society yet were not successful. Command economies are not effective as well because in their effort to redistribute and equalize wealth among citizens they take away an essential part of a thriving economy: incentive. With the government controlling how much people are receiving and giving people equal wealth benefits, there are no incentives for people to work harder or be more innovative which leads to a stagnant society.
Market economies are mainly driven by producers and consumers, who dictate prices based off changes in the demand of the product. They tend to follow laissez-faire policies, meaning the government has little involvement in economic decisions. This popular economic type is typically known as capitalism. The United States is a good example of a market economy, and is considered one of the most efficient forms of government because it allows for growth and gives the people the economic freedom to make choices that best serve their self-interest.
Mixed economies are more popular since it is hard for a society to be purely command or market. Most countries tend to take policies from both, earning the label “mixed”. A mixed economy still gives businesses freedom but allows the government some interference. More specifically, governments typically establish policies to regulate the trade going on between businesses instead of allowing the people to handle it themselves. Many democratic countries like the United Kingdom follow this outline for society.
I think this is very interesting and important to know when we go on in Economics. While we have learned about the last three types of economies, namely command, market, and mixed, I thought it was interesting to learn that there is another kind. It seemed like the traditional economy was actually pretty similar to the command or even slightly mixed economy except that, instead of money, other goods are used. The government interference is still limited and goods that are created are dictated by the demand, even though the goods and methods of production may be different.
ReplyDeleteI really liked how you described and gave examples for each type of economy. I agree with Anna that we mainly went over three types of economies in class: command, market, and mixed economies. Traditional economies - as you can tell from the name - are the most traditional type of economy in the world. They produce products/services that are a result of their beliefs, cultures, traditions, etc. Areas that have this type of economy are usually rural or third world areas (farming). Traditional markets will not see a surplus or profit like a market or mixed economy will. This is because a rural country does not have the resources necessary for a surplus and in most cases, the surplus is distributed or given to another country with a wealthier economy.
ReplyDeleteTo clarify a point you made about market economies, laissez-faire capitalism, or pure capitalism, is when a government's role is limited to protecting private property and creating an environment that harmoniously coexists with the market system. In the United States, government plays a greater role in the economy than in laissez-faire capitalism, since the United States government dictates the rules for economic activity, facilitates economic growth and stability, supplies good and services that would otherwise be underproduced, and modifies the distribution of income.
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