Types of economic systems

TYPES OF ECONOMIC SYSTEMS

Each country must decide what type of economic system adopt to increase its wealth, which depends on how well the country exploits factors of production. There are 3 main types of economic systems: free market economy, centrally planned economy and mixed economy.

FREE MARKET ECONOMY

Free market economy is the system where all decisions regarding the production of goods and services are made by the citizens of the country.

The positive side of this system is the great choice and the competition that makes producers supply goods at lower prices. On the negative side, the wealthier sectors of society hold most of the economic and political power, and essential services like health may be endangered if they are not profit-making.

This system can be found in South East Asia, such as Singapore and Taiwan.

CENTRALLY PLANNED ECONOMY

Centrally planned economy is the system where all decisions regarding the production, for example what to produce and what price goods should be sold, are made by the state.

On the positive side, social equality is a major goal. On the negative side, lack of competition may lead to many problems, and often problems of bureaucracy arise because the state makes the major decisions.

This system can be found in China, Russia and Eastern Europe.

MIXED ECONOMY

Mixed economy is a combination of the 2 systems; it is the "best of both world" but it can also have the negative sides of the other systems. The public sector, such as public transport, education, ., is the part of the economy that is controlled by the state; the private sector is the part of the economy that is controlled by individuals and firms.

This system can be found in the European Union (EU) and in the USA.