Question

International Business short essay Question 8: Describe the three main types of economic systems.

Answer 1

Answer : 8) The economy is a system which is called called economic system. In economic system goods and services are produced and then those goods and services are exchanged. Mainly the economy has 3 types of economic systems. These 3 types of economic systems are : (i) Free-market economic system; (ii) Command economic system and (iii) Mixed economic system.

(i) Free-market economic system : Free-market economic system means that there is no any restriction in the market. In this economic system the market price level is determined by the interaction of market demand and market supply. In this economic system both the individuals and businesses has freedom on their own economical interests and on buying or selling goods and services.

(ii) Command economic system : In command economic system only the central government makes the economic plans. This means that only the central government control the whole economy. In this economic system, the central government allocate the resources and also decide the price levels for goods and services. Hence this economic system is also known as Centrally Planned Economic System.

(iii) Mixed economic system : The mixed economic system is the combination of free-market economic system and command economic system. In this economic system sometimes the government takes decisions to protect industries or to help consumers. Even that sometimes in free-market economic system sometimes the government take decisions to maintain the economic balance.