Types of Economics Systems

A traditional economy is an economic system in which resources are allocated by inheritance, and which has a strong social network and is based on primitive methods and tools. It is strongly connected to subsistence farming. In the majority of countries traditional economy has been replaced by command economy, market economy or mixed economy. However, it is found today mainly in underdeveloped, agricultural parts of South America, Asia, and Africa.

A centrally planned economy is an economic system in which the state or government controls the factors of production and makes all decisions about their use and about the distribution of income. In such an economy, the planners decide what should be produced and direct enterprises to produce those goods. Planned economies are in contrast to unplanned economies, i.e. a market economy, where production, distribution, and pricing decisions are made by the private owners of the factors of production based upon their own interests rather than upon furthering some overarching macroeconomic plan.

A market economy is an economic system in which the production and distribution of goods and services takes place through the mechanism of free markets guided by a free price system rather than by the state in a planned economy. In a market economy businesses and consumers decide what they will produce and purchase, as opposed to a planned economy where the government decides what is to be produced and in what quantities.

A mixed economy is an economy that has a mix of economic systems. It is usually defined as an economy that contains both private-owned and state-owned enterprises or that combines elements of capitalism and socialism, or a mix of market economy and command economy.There is not one single definition for a mixed economy, but relevant aspects include; a degree of private economic freedom, including privately owned industry, intermingled with centralized economic planning, which includes intervention for environmentalism and social welfare, or state ownership of some of means of production.

The difference between communism and socialism is that communism is a political, social, and economic system in which the state, governed by an elite party, controls production, labor, and distribution, and, largely, the social and cultural life and thought of the people, and socialism is a political movement advocating or associated with a theory or system of social organization by which the major means of production and distribution are owned, managed, or controlled by the government (state socialism), by associations of workers (guild socialism), or by the community as a whole.