Economic system models

Allocation mechanism. The basic and general economic systems segmented by allocation are: Market economy (“hands off”systems, such as laissez-faire capitalism) … Planned economy(“hands on” systems, such as state socialism, also known as “command economy” when referring to the Soviet model)

Exhibit1-6First of all what is ‘economic system?’

Well to a  general sense it’s all about goods and services. So Economic system is a system of productionresource allocation, and distribution of goods and services within a society or a given geographic area. It includes the combination of the various institutions, agencies, entities, decision-making processes, and patterns of consumption that comprise the economic structure of a given community. As such, an economic system is a type of social system. The mode of production is a related concept.All economic systems have three basic questions to ask: what to produce, how to produce and in what quantities, and who receives the output of production.economic-model-5-728

The study of economic systems includes how these various agencies and institutions are linked to one another, how information flows between them, and the social relations within the system (including property rights and the structure of management).

The analysis of economic systems traditionally focused on the dichotomies and comparisons between market economies and planned economies, and on the distinctions between capitalism and socialism. Subsequently, the categorization of economic systems expanded to include other topics and models that do not conform to the traditional dichotomy. Today the dominant form of economic organization at the world level is based on market-oriented mixed economies 

model2Economic systems also answer the three basic economic questions.
1). What goods and services should be produced and in what quantity?
2). How should these products be produced?
3). For whom should these products be produced?


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Responses to the basic economic questions help distinguish between different types of economic systems: traditional economies, command economies, and market economies. In reality, virtually all economies today are mixed economies—economies that adopt features mainly from the command and market models.


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