17. What is an economic system?

The survival of any society depends on its ability to provide food, clothing and shelter for its people. Since these societies are also faced with scarcity, decisions concerning What, How and for Whom to produce must be made.

All societies have something else in common. They have an economic system or an organized way of providing for the wants and needs of their people. The way in which these decisions are made will determine the type of economic system they have. An economic system is a mechanism that deals with the production, distribution and consumption of goods and services in a particular society.

There are four main types of economic systems present in the world: the traditional economy, the command economy, the market economy, and the mixed economy.

18. What are the major kinds of economic systems?

There are four main types of economic systems present in the world: the traditional economy, the command economy, the market economy, and the mixed economy.

Command economy is an economic system in which major decisions concerning the allocation of resources are made by agencies of the government.

Market economy is an economic system in which national economic decisions are the result of decisions of individual buyers and sellers in the market place.

Traditional economy is an economic system that allocates scarce resources according to customs, change and growth are very slow; people do what they parents did before them; most goods are produced and consumed locally.

Mixed economy is an economic system that combines elements of public ownership of the means of production with private ownership.

19. What is a command economy?

The command economy is a society where the agencies of government make all decisions concerning what will be produced, how it will be produced, and for whom it will be produced.

In a command economy, a central authority or agency draws up plans that establish what will be produced and when, sets production goals, and makes rules for distribution. The individual has very little say as to how the basic economic questions are answered.

The major advantage of a command system is that it can change direction drastically in a relatively short time. The major disadvantage of the command system is that it does not always meet the wants and needs of individuals.

The major disadvantage of the command system is that it does not always meet the wants and needs of individuals.

20. What disadvantages does the command economy have?

The command economy is a society where the agencies of government make all decisions concerning what will be produced, how it will be produced, and for whom it will be produced.

The major disadvantage of the command system is that it does not always meet the wants and needs of individuals.

The second disadvantage of the command economy is the lack of incentives that encourage people to work hard. In most command economies today workers with different degrees of responsibility receive similar wages. As a result, there is a tendency for some to work just hard enough to fill production quotas set by planners.

The command economy requires a large decision-making bureaucracy. As a result, most decisions cannot be made until a number of people are consulted, or a large amount of paperwork is processed. Thus, a command system does not have the flexibility to deal with day-to-day problems.