The Different Types of Economy and What They Mean

I published an Intro to the Economy post last week (that you should definitely check out before reading this one), and while writing it, I realized that there's a lot to be learned about the economy! Today we're going to dive into the different types of economy and various examples of them around the world, so that you can see how each country's different economic system collaborates and combines into the linked global economy.

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Here's a quick refresher on the definition of economy (or economic system as I might say occasionally in this post): an economic system is determined by the way that scarce resources are produced and consumed in a region. There are four distinct types of economy: traditional, command, market, and mixed.

1.Traditional: As you might gather from the name, a traditional economy rarely strays from tradition and is the simplest form of an economic system. Regions that employ this system generally focus on agriculture and other centuries-old practices to ensure their livelihood. They are very focused on the concept of families producing only as much as they need for themselves, which is why unlike the other three systems below, there is rarely a surplus of goods in a traditional economy.

Example of Countries: typically less modern/technologically advanced countries like Haiti and Bhutan

2. Command: A command economy is run by a centralized power (one of the key principles of a communist government, for example). The government is often extremely involved in most processes involved in the economic system, including production, determining labor, and distribution. This usually ensures that the government owns crucial industries/infrastructure such as railroads, utilities (water, electricity), and oil. What this means is that businesses and corporations don't really have a place to create monopolies or generate much presence in industries that the government chooses to dominate. While this means that a command economy is capable of generating as many resources as needed for the public, this is often not the case because the centralized power may not make decisions with the public's best interests at mind.

Example of Countries: typically more modern/advanced countries with very strict government rule like North Korea and Cuba

3. Market: A market or free market economy is essentially the complete opposite of a command economy, where the public gets to decide how resources are allocated and there is very little government interference in economic activities and regulation. Citizens act in self-interest and the government does not keep the profits, which makes room for individuals, businesses, corporations to have monopolies (or the greatest presence) in any industry. Market economies allow private organizations/entities to amass a lot of wealth and power, which is why the wealth gap is typically very large.

Example of Countries: typically more modern/advanced countries with governments ruled by the citizens like the United States and England

4. Mixed: A mixed economy is when principles of the command system and free market system are combined. Typically, governments will exercise some control over the economy and have ownership presence in a few areas (transportation usually), like a command economy. However, private businesses are still allowed to operate and be competitive and the public acts in self-interest, like in a market economy. This is the most common form of economy around the world, with most economists considering it the perfect mix of socialist and capitalist principles. Though, it is up to each country to decide which elements and to what degree it will blend the two original economic systems, which typically ends in there being more government presence than expected.

Example of Countries: very diverse country profile like India and France

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