Types of economic systems
Economics studies how society chooses to use resources to produce and distribute goods and services for people’s consumption. To use its limited resources effectively, every nation needs an economic system. The primary goal of an economic system is to provide people with a minimum standard of living, or quality of life. There are four types of economic. They are free market economy, command economy, mix economy and traditional economy.
Free market economy
In a market economy economic decisions are made in the marketplace according to the laws of supply and demand. Price is the amount of money given or asked for when goods and services are bought or sold. Demand is the amount or quantity of goods and services that consumers are willing to buy at various prices. The higher the price, the fewer consumers will buy an item. The lower the price, the more consumers will buy an item. Supply is the amount of goods and services that producers will provide at various prices. Demand and supply work together. When the quantity demanded and the quantity supplied meet, the price is called the equilibrium price. A market economy is also called capitalism, or private enterprise. In a capitalist system, resources are privately owned. In a capitalist system, the primary role of government is to support the marketplace by removing obstacles such as trade barriers. A market economy offers incentives, such as competition and the profit motive, to produce more. The constant demand for new goods and services encourages entrepreneurship. The problem with a market economy is that owners and producers reap the most rewards. Another problem with a market economy is that unskilled workers and older adults are often unable to afford basic needs such as health care. Another problem with a market economy is that a small number of large companies can join forces to