Text I Economy. Types of Economic Systems.

Every nation must organize the production and distribution of goods and services wanted by its citizens. Four main elements make it possible for nations to produce goods and services. These elements, called productive forces, are: (1) natural resources (land, raw material, minerals, water); (2) capital (factories, tools, supplies, equipment, money); (3) labour forces (people, their education and skills); (4) technology (scientific and business research and inventions). The economy is the mechanism that brings these elements (that is natural resources, the labour supply, technology, and the necessary entrepreneurial and managerial talents) together. So we can define the economy as a system for the management, use and control of labour, land, natural resources, money, goods and other resources of a country, community or household.

For goods and services to be available in a country, there has to be a highly organized and developed economy. Such an economy is made up of various industries. An industry is a group of businesses or enterprises that produce a similar product or provide a similar service. There are three main sectors in any economy: the primary sector, the secondary sector and the tertiary sector.

Industries of the primary sector, or primary industries, are based on supplying or obtaining the country’s natural resources. They are directly extracting goods from natural environment, and include agriculture, forestry, fishing and mining.

The secondary sector is made up of the construction and manufacturing industries. The construction industry is involved in the construction of roads, schools, hospitals - all parts of infrastructure of the state. The industry is also concerned with house and factory building. Manufacturing industries produce goods by means of mechanical, electrical or chemical, but not manual, processing of natural resources or raw materials.

Industries of the tertiary sector provide different services to consumers, such as trade, transport, banking, insurance and other public services. Other examples of service industries also include: medical service (hospitals, doctors, nursing), catering service (hotels restaurants, cafes), government services (education, justice, training), communication service (phone, fax, e-mail), etc.

There are a number of ways in which a country can organize its economy to solve three basic problems: 1) What goods and services are to be produced? 2) How are those goods and services to be produced? 3) Who will receive and consume them?

Different types of economies have developed as nations have tried different approaches to solving their basic economic problems. Every country has an economic system to determine how to use its resources. An economic system is the way in which a country uses its available resources (land, workers, natural resources, machinery, etc.) to satisfy the demand of its population for goods and services.

There are four main economic systems:

traditional economy,

planned or command economy,

free market or free enterprise economy,

mixed economy.

Traditional economic systems are usually found in the more remote areas of the world. Typically, in a traditional economy most of the people live in rural areas and their main activities are agriculture, fishing or hunting. The goods and services in such a system are those that have been produced for many years or even generations in a way they have always been produced. Most individuals live very poor.

Planned or command economies are characterized by government control of all major economic activities and government ownership of nearly all productive resources. It is an economic system with a large amount of central planning and direction, where government takes all the decisions about how goods are produced, priced and distributed.

Free market or free enterprise economic systems are called so because they are based on private enterprise with private ownership of the means of production. They allow people to carry out most economic activities free from government control. Even in these economies, however, the government owns some land and capital and exercises some control over the economy.

A mixed economy contains elements of both market and command economies. Mixture of market forces and government participation has led to development of such an intermediate system. The aim of mixed economies is to avoid the disadvantages of both systems while enjoying the benefits that they both offer. So, in a mixed economic system the government and the private sector interact in solving economic problems.