Economic System

Business, Legal & Accounting Glossary

Definition: Economic System




Full Definition of Economic System


An economic system is an arrangement that necessitates the production, distribution and consumption of goods and services between members in a specific society. People and institutions make up the basic structure of an economic system with their relationships to productive resources like property making up the whole. The problems of economics like apportioning of limited productive resources can be tackled by means of an appropriate economic system. There are a number of economic systems in existence; socialist systems, mixed economies, and capitalist systems are the more prominent ones.

Types

The economic systems are of the following types:

  • Traditional economy
  • Command economy
  • Planned economy
  • Market economy
  • Mixed economy
  • Participatory economics

All of the above mentioned economic systems strive to answer the various problems that exist in any given economy. A common example is the problem of scarcity. Scarcity brings forth the following fundamental questions: what is to be produced, how is to be produced, and who is the benefactor of this production. Dissimilar economic systems give different answers to these questions.

Comparison Of Market And Command Systems

The basic division between economic systems is a market system and command system. A command system economy is characterized by centralized decision making. The government dominates all factors of production and also decides output consumption. The socialist economic system forms an example of a command economy. In contrast, in a market system, individuals control production factors. The group decisions of these individuals are apparent in quickly varying prices. The varying price, in turn, depends upon the demand and supply of a number of commodities. The prices indicate scarcity and abundance in different points of time. They function as signals to buyers and sellers and assists them to determine the commodities to be bought and commodities to be produced. An example of a market system is the capitalist economic system.

Mixed Economic Systems

Almost all country economies blend a bit of both- market and command into their economic systems. This type of economic system blend is termed as a mixed economic system. The United States has formulated a ‘minimum wage’ rule for its citizens. Former USSR states like Russia have given their farmers substantial freedom to produce crops and sell them as they wanted to.


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Definition Sources


Definitions for Economic System are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 28th March, 2020 | 10 Views.