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Types of economy (economic systems)

Economists recognize different types of economy (economic systems) and classify them in a number of ways. According to  Hill (2012, p.52), there are ‘three broad types of economic systems – a market economy, a command economy, and a mixed economy’. However, in addition to these three systems, there is also another system called traditional economic system. Let’s now explore what these economic systems are.

Types of economy (economic systems)

Traditional economy

Traditional economies are the most basic type of economy. In a traditional economy, tradition (customs, belief etc.) determines the economic decisions of the country concerning production and distribution. Poor and developing countries usually have traditional economies. However, with economic development and passage of time, they can evolve into other types of economy (economic systems).

Market economy

A market economy is unplanned and supply and demand of goods and services determine production. There is no government intervention in a pure and free market economy. According Hill (2012) in a pure market economy, all productive activities are privately owned.

According to Financial Times (n.d) prices are set according to supply and demand and are not controlled by the state in a market economy. While it is difficult to find a pure market economy in the world, many economists regard countries such as the USA, the UK, Japan, and some others as market economies.

Command economy

Government control is the central feature of a command economy. According to Hill (2012, p.52) in a pure command economy ‘the government plans the goods and services that a country produces, the quantity in which they are produced, and the prices at which they are sold’. The government owns most of the businesses if not all, and government officials direct and control all the factors of production.

While China has shifted towards a market economy, still many economists argue that that country has a command economic system. Likewise, former Soviet Union and North Korea are also regarded as command economies.

Mixed economy

As it sounds, a mixed economy is a combination of different types of economic systems. It finds itself in between market economies and command economies. According to Hill (2012) in a mixed economy, certain sectors of the economy are left to private ownership, while the government owns the others.

Economists regard many western countries as mixed economies where many of the industries are in private ownership, while the governments retain the ownership of a small number of industries such defence, health care and transportation.

We hope you like the article on the types of economy (economic systems). You may also like reading Foreign Direct Investment. Other relevant articles for you are:


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Last update: 02 September 2018


Financial Times (n.d.) Definition of market economy, available at: (Accessed 31 August 2018)

Hill, C. (2012) International Business: Competing in the Global Marketplace, 9th edition, New York: Mc Graw-Hill

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Author: M Rahman

M Rahman writes extensively online and offline with an emphasis on business management, marketing, and tourism. He is a lecturer in Management and Marketing. He holds an MSc in Tourism & Hospitality from the University of Sunderland. Also, graduated from Leeds Metropolitan University with a BA in Business & Management Studies and completed a DTLLS (Diploma in Teaching in the Life-Long Learning Sector) from London South Bank University.

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