What is an Economic System?

Because of the fact that there is scarcity of resources and unlimited wants, it is always a problem to allocate resources in an efficient manner. We are constantly facing three basic questions. These are:

  • What to produce?
  • How to produce?
  • For whom do we produce?

Every community or country must choose and develop its own way of solving these problems. The way a country decides what to produce, how to produce and for whom to produce is called it Economic System.
The three Economic Systems existing are:

  • Market Economic system
  • Planned Economic System
  • Mixed Economic System

Note:

  • There are no PURE command economies
  • There are no PURE market economies
  • Instead there is a continuum of different characteristics

continuum of economic system

 

 

 

 

 

What happens when countries move from command economy to market economy?

CHARACTERISTIC

 

COMMAND ECONOMY

 

MARKET ECONOMY

Ownership of resources:

From:

government ownership

To:

private ownership

Decision making:

From:

centrally planned

To:

by the market

Motivation:

From:

"the social good"

To:

self interest and profit

Prices and Wages:

From:

set by the government
often distorted

To:

set by the market
change with market

Result:

From:

inefficiency
full employment
low inflation
low standard of living
shortages
more equal distrib

To:

economic efficiency
periods of unemploy.
periods of inflation
high standard of living
wide range available
less equal distrib.

Problems:

From:

corruption=self interest
lack of incentives (the incentive problem)
distorted prices (the coordination problem)
inefficiency

To:

monopoly= inefficiency
inequality
changing prices
instability (UE, IN)
pollution

OVERALL:

From:

LESS FOR MORE
(INEFFICIENT)
and a lower standard of living

To:

MORE FOR LESS
(EFFICIENT)
and a higher standard of living

New Youtube Channel - ThinkIGCSE

Hi Everyone, I have launched a new YouTube channel with more than a 100 videos on  Economics and Business Studies, tailored specifically for IGCSE and A Level and IBDP students.

Subscribe now and join us on this learning journey: @thinkIGCSE

Exciting News!

IMPORTANT MESSAGE

Quizzes and worksheets on this website have been developed in Flash format. Flash is no more supported by browsers. Therefore, you might see blank pages on some instances. Install Flash player plugin for Chrome from Chrome Web Store. Click here 

Similarly, for other web browsers you will have to activate the relevant flash player plugins.

JOIN OUR ONLINE COURSES

WHO'S ONLINE

We have 157 guests and no members online

Crosswords

PDF FILE

Download

MindMaps

PDF FILE

Download

Save
Cookies user preferences
We use cookies to ensure you to get the best experience on our website. If you decline the use of cookies, this website may not function as expected.
Accept all
Decline all
Read more
Analytics
Tools used to analyze the data to measure the effectiveness of a website and to understand how it works.
Google Analytics
Our website uses Google Analytics to understand how you interact with our site and improve your browsing experience. These cookies collect information in an anonymous form, including the number of visitors to the site, where visitors have come from, and the pages they visited. The data helps us analyze trends and user behavior to enhance our website's functionality and content.
Accept
Decline
Marketing
Set of techniques which have for object the commercial strategy and in particular the market study.
Marketing
Our website uses Google marketing cookies to deliver personalized ads and measure the effectiveness of our advertising campaigns. These cookies track your online activity to help us show you relevant ads on Google services and partner websites.
Accept
Decline