Economic Systems

Since economics deals in managing the available scarce resources, there are three basic questions that a country has to answer:

• What to produce?
• How to produce?
• For whome to produce

The answers to the above questions determine what type of an economic system that particular country has.

Traditional Economies

This is the earliest type of economies. Traditional economies existed in pre-historic age where hunter-gatherers relied on their enviroment to fulfill their needs, they bartered any excess meat or produce they collected. This type of economies are very rare in the modern world.

Command Economies

In this type of economic system, the government answers all the basic economic questions. Let's see the typical answers to those questions by the government:

• What to produce - The government decides what will and must be the needs of the citizens. The ans could be to produce only 'Dettol' soaps and no other variety of soaps. Citizens have no choice but accept it.
• How to produce - The government decides the method of production. A typical answer by a command economy could be to produce it in a labour intensive factory owned by the government.
• For whome to produce - Again the goverment decides who will consume the products. Yes the answer is that the production is done for the people, so the people will use it and everyone gets the same price. Welfare is supposedly maximized.

Government controls everything. The factors of production are all owned by the state and production is done for the welfare of the state. And ofcourse the choice of goods available to the people is much less, the people have to accept what is produced.

Read more about the economic systems

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