Traditional economy

A traditional economy is an economic system in which decisions are all made on the basis of customs, beliefs, religion, habit, etc. For example: “This is what my grandfather did and what his grandfather did ...”.

It has an advantage over other systems, in that there is little friction among members because relatively little is disputed. However, it restricts individual initiative and has a lack of advanced goods, new technology, and growth.

Traditional economies are found primarily in the rural, non- industrial areas of the world. In such areas there is no national economy. The traditional economic system is used by African tribes and was used by Native Americans. It is also found today in some parts of South America, Asia, and Africa. There, people still make clothing and shelter almost exactly the same way as they did in the past.

Market economy

A market economy is an economic system in which goods and services are traded with the price at which goods and services are exchanged being determined by trades that occur as a result of sellers’ asking prices matching buyers’ bid prices.

A market economy has no central coordinator guiding its operation, yet theoretically organization emerges amidst the complex interplay of supply and demand and price regarding a multitude of goods and services. This is a freely operating market. Many supporters of markets hold that the pursuit of self-interest is actually in the best interest of society.

Some believe government should intervene to prevent market failure while preserving the general character of a market economy, while others believe that governments should not diminish market freedom to remedy what some regard as market failure. A market economy that has little or no governmental intervention is called a free market economy. The theoretical model of a large-scale free market economy does not occur legally, however the underground economy may be seen as an actualised free market economy. In the model of a social market economy the state intervenes where the market does not fulfil the needs of the market participants.

Planned economy

A planned economy is an economic system in which decisions about the production, allocation and consumption of goods and services are planned ahead of time, in either a centralized or decentralized fashion. Since most known planned economies rely on plans implemented by the way of command, they have become widely known as command economies.

The government can harness land, labour, and capital to serve the economic objectives of the state (which, in turn, may be decided by the people through a democratic process). Consumer demand can be restrained in favour of greater capital investment for economic development in a desired pattern. The state can begin building a heavy industry at once in an underdeveloped economy without waiting years for capital to accumulate through the expansion of light industry, and without reliance on external financing.

A planned economy can serve social rather than individual ends: under such a system, rewards, whether wages or perquisites, are to be distributed according to the social value of the service performed. A planned economy eliminates the dependence of production on individual profit motives, which may not in themselves provide for all society’s needs.