Types of economic systems
There are three main types of economic system:
- free market economy;
- centrally planned economy;
- mixed economy.
In a free market systems all decision about the production of good and a services are made by the citizens of the country with very litter interference from the government.
On the negative side, the wealthier sectors of society hold most of the economic and political power.
Essential services such as defence, education and health may be endangered if they are not profit-making.
In practice there are no pure free market economies in the world.
The closest examples of free market economies can be found in South East Asia in countries such as Singapore.
In a centrally planned economy all the decisions about the production of good and a services are made by the state. Government officials decide what goods to produce, how to produce them, to whom they should be distributed and at what price they should be sold.
Centrally planned economies, such as the communist systems in China and those that used to exist in Russia and est Europe, have become more market-based in recent years.
A mixed economy is a combination of the two systems ( free market economy and centrally planned economy ) . In most areas, citizens are free to set up business to produce goods and services. The public sector is the part of the economy that is owned by the state. The private sector is the part of the economy that is owned and controlled by individuals and firms.
The mixed system enjoys the “best of both worlds”, but it can also have the disadvantages of both the free market and centrally planned systems.
Almost all the major economies in the world, including those of the European Union and the USA, are mixed systems.