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An economic system is a mechanism (also defined as system or social institution ) which deals with the production, distribution and consumption of goods and services in a particular society. The economic system is composed of people, institutions and their relationships. It adresses the problems of economics like the allocation and scarcity of the resources.
1 The division of economic systems
There are several basic questions that must be answered in order to resolve the problems of economics satisfactorily. For example, the scarcity problem requires answers: what to produce, how to produce it, and who should get what is produced. An economic system is thus a way of answering these basic questions. Different economic systems answer them differently.
Please note that there is often a strong correlation between certain ideologies, political systems and certain economic systems (for example, consider the meanings of the term " communism"). Many economic system overlap each other in various areas (for example, the term " mixed economy" can be argued to include elements from various systems). There are also various mutually exclusive hierarchical categorizations.
The four most basic and general economic systems are:
- Market economyA market economy is an economy in which most allocations of resources occur as a result of interactions between buyers and sellers of goods and services. It is often contrasted with a planned economy in which most allocations of resources occur as a resul (the basis for several "right-wing" systems, such as capitalismCapitalism generally refers to a combination of economic practices that became institutionalized in Europe between the 16th and 19th centuries. Exactly which historic and current practices are considered part of "capitalism" varies among users of the term)
- Mixed economy (arguably the "centrist" economic system)
- Planned economyIn a state with planned economy economic decisions are made by planners, acting (in theory) on behalf of the public, who determine what sorts of goods and services to produce and how they are to be allocated. Since most known planned economies rely on pla (the basis for several "left-wing" systems, such as socialismFor information on mainstream political parties using the term "Socialist", see Social democracy and Democratic socialism For the governments of the USSR, the PRC, and others, see: Communist state Other variants of Socialism include Marxism, Communism, an)
- Traditional economyA traditional economy is an economic system in which decisions such as the who, how, what, and for whom questions are all made on the basis of customs, beliefs, religion, habit, etc. It has an advantage over other systems, in that there is little friction (a generic term for the oldest and traditional economic systems)
An economic system can be considered a part of the social system and hierarchically equal to law system, political system, cultural system, etc.
Please see List of economic systems for other possible categorizations of economic systems, as well as detailed lists with many subcategories.
2 See also
Economics
Economic theories
