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Economic Systems: Traditional, Market, Command & Mixed

Economic Systems: Traditional, Market, Command & Mixed
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  • 0:00 Types of Economic Systems
  • 0:50 A Traditional Economy
  • 1:38 Command Economy
  • 2:28 Market Economy
  • 3:23 Mixed Economy
  • 4:09 Lesson Summary
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Lesson Transcript
Instructor: Jason Nowaczyk
The following lesson describes the four types of economic systems that are responsible for all of the buying, selling, and production of goods. A short quiz will follow the lesson to check your understanding of the material.

Types of Economic Systems

Whenever you buy something at a store, you are participating in the basic transaction found in any kind of modern economy. A modern economy includes the production, buying, and selling of all goods and services, including the people that work to make these activities happen.

Now, imagine your simple store-based transaction happening all across the globe, millions of times a day. Who organizes and coordinates all this buying and selling? Who decides how many employees are needed to handle these transactions efficiently? And who makes sure there's enough products to match the demand?

In this lesson, we'll explore the four different types of economic systems found across the globe. These types include: a traditional economy, command economy, market economy, and mixed economy.

A Traditional Economy

The oldest type of an economy found around the world is a traditional economy, which is based upon a people's belief and customs. In these self-sustaining economies, communities and families grow crops and manage their farms using traditional methods. What they produce is what they get to consume.

Traditional economies can still be found in the developing world, like parts of Asia, Africa, and South America. Although they lead to little economic growth, they also produce little waste, and surpluses are rare. As individuals in traditional economies have clearly defined roles and are invested in their success, these systems also help to keep small communities and societies close together. On the other hand, members of traditional economies often go without things that more complex systems enjoy, like technology and advanced medicine.

Command Economy

Instead of an economy based on tradition, a command system is based on goals passed down from a central ruler or ruling class. In a command economy, the ruling class or government makes all of the economic decisions, such as what goods and services will be produced, how much they should be sold for, and how much workers will be paid for producing them. Modern day examples can be found in many Communist countries, like North Korea and the former Soviet Union.

Other examples, albeit much older, include the medieval feudal system, where the lord provided the land for growing crops. In return, vassals were allowed to live on the land while providing labor and soldiers to the lord. In theory, this economic system may be beneficial if the government has the best interest of its people in mind. However, command economies can also devolve into wide-scale inequality and corruption.

Market Economy

Whereas a command economy is based around a central body, a market economy is a system where pricing decisions are decentralized. When we call something a market, we're talking about anything that brings buyers and sellers together. For instance, e-commerce is a type of market where people are able to use the Internet to buy and sell goods.

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