Question

Name three basic kinds of economic systems and explain how they differ.

Short answer

The three basic kinds of economic systems are Traditional, Command, and Market. A Traditional Economy is driven by customs and traditions, a Command Economy is guided by a central authority such as a government, and a Market Economy is directed by the interactions of citizens and businesses.

Step-by-step solution

Identification of Economic Systems

The three basic kinds of economic systems are Traditional, Command, and Market.

Explanation of Traditional Economy

Traditional Economy is a system where traditions, customs, and beliefs shape the goods and the services the economy produces, as well as the rules and manner of their distribution. Countries that use this type of economic system are often rural and farm-based.

Explanation of Command Economy

A Command Economy, also called a planned economy, operates under a central authority (like a government) and there is a central plan that guides the economy. Here, the government decides what to produce, how to produce, and for whom.

Explanation of Market Economy

In a Market Economy, economic decisions and pricing are guided by the interactions of a country's citizens and businesses. There is no central regulatory authority, and supply and demand determine the production of goods and services.