The Economy

The economic system is the system by which a society organizes its production and distribution of goods and services. It includes the institutions and mechanisms by which resources are allocated and prices are determined.

Most economists believe that there are three major types of economic systems: free market, command, and mixed. Free market economies are those in which individuals or firms make most of the decisions about what to produce and how to allocate resources. Command economies are those in which the government makes most of the decisions about what to produce and how to allocate resources. Mixed economies are those in which both individuals and the government make decisions about what to produce and how to allocate resources.

In a free market economy, the allocation of resources is determined by the interactions of buyers and sellers in markets. Prices are determined by the forces of supply and demand. This type of economy is also sometimes called a capitalist economy or a market economy.

A command economy is one in which the government makes most of the decisions about what to produce and how to allocate resources. The government may make these decisions directly, or it may do so indirectly by owning and operating key industries. In a command economy, prices are often set by the government rather than by the forces of supply and demand. This type of economy is also sometimes called a planned economy or a centrally planned economy.

A mixed economy is one in which both individuals and the government make decisions about what to produce and how to allocate resources. Mixed economies typically feature a mix of private ownership of businesses and industries and public ownership of some key industries. Prices in a mixed economy are usually determined by the forces of supply and demand, but the government may also play a role in setting prices.