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Types of Economic Systems: Traditional, Command, Market & Mixed

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  • 0:01 Different Economic Systems
  • 0:40 Traditional Economies
  • 1:35 Command Economies
  • 2:42 Market Economies
  • 3:56 Mixed Economies
  • 5:02 Lesson Summary
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Lesson Transcript
Instructor: Kevin Newton

Kevin has edited encyclopedias, taught middle and high school history, and has a master's degree in Islamic law.

Just like there are different political systems, there are also vastly different economic systems. This lesson introduces the differences between traditional, command, market, and mixed economies.

Different Economic Systems

Let's say that you've been named head of procurement for a large factory about to be built in a country of your choosing. Your boss has told you that you have to be able to easily obtain all the goods required for production, and you should choose the plant's location carefully as a result.

You have asked your assistant to research the four most promising environments, all close enough that transportation costs are a non-issue. He hands you four files, and you start looking at four very different potential locations. In fact, it seems that the only way in which these four countries differ is in their economic system, or the method in which the government influences or ignores economics.

Traditional Economies

The report on the first location looks confusing. On the cover sheet of the report, listing many facts about the place, there is a 'not applicable' next to currency. Hmmm, surely they use money. You call your assistant and ask why the currency was left off. His response is less than encouraging. He tells you that despite his best research, it appears that they don't have one. Noting the confusion on your face, he continues that they have a traditional economy, meaning that all transactions are based on trade or bartering goods.

While you're pretty sure that you could get your raw materials for a very low price from this country, you're pretty sure that your accounting department would be very upset with you if you purchased supplies using coconuts. Also, what happens if you couldn't find anything that the people who owned your desired materials needed? Surely there had to be a way to ensure a more stable supply chain. You throw the file into your recycling bin, rolling your eyes that it was even presented in the first place.

Command Economies

The next country's file has a currency, as well as a star and a sickle logo on practically all of their documents. You flip through, finding out that prices are low for your required goods and that many of the benefits that your company normally pays workers are covered by the state. Why hasn't anyone invested here before? You call again for your assistant, asking him to make an appointment to pitch this location to the others, and tell him to destroy all the other files. He stutters, then says that he doesn't think it would be such a good idea.

Apparently, this country has a command economy, meaning that the state decides how much of every good will be produced. With that, your hopes are dashed. The assistant explains further that while prices are low, those are official market rates. Apparently, because prices are so low, suppliers only sell on the Black Market, where they can charge whatever prices they want. Also, because the government has complete control of all production, it can change production goals at a moment's notice, meaning that suddenly you will be without any raw materials. Alas, another file for the trash can.

Market Economies

The third country has higher prices, but when you dig into the numbers, it is more inviting. Whereas the command economy featured wide fluctuations in quantity supplied, this economy continually produces whatever is needed. Further, you find that there are no government subsidies for industries, so your suppliers are likely to be profitable and able to stick around for a long time. This means you can build a good relationship with them.

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