Economic Systems: 

All societies have to deal with the problem of scarcity. They have to make choices about resource allocation because their resources are limited and they must try to use their resources as efficiently as possible. In doing so, societies have to answer three basic questions:

• What should be produced?
• How should it be produced?
• For whom should it be produced?

Different economic systems have different ways of answered these questions. There are three types of economic systems namely traditional, command and market.

Traditional economic systems are still found in South America, Asia and Africa. In a traditional economy, the economic roles that people play the same roles that their ancestors filled. Usually organized in a village level, traditional people plant and harvest the same land their ancestors did, and most products are produced the way they were in the past.

In a command economy, the government is the primary decision maker. The government designs a central plan to determine what is to be produced, how to allocate resources to produce it, and how and to whom the product is to be sold. This means that the individual citizens cannot decide to open their own private businesses.

In a market economy the three basic economic questions are answered largely by buyers and sellers decisions in the marketplace. Profit acts as the incentive for production. As consumers make product purchases, they are voting in the marketplace and helping sellers to make decisions about products to produce for people who are willing and able to pay for them. Resources flow to those industries producing profitable products.

Economic systems also differ with respect to ownership of the means of production, that is, the physical, non human resources used in production. In a command economy the government owns and operates most of the means of production. In a market economy private citizens and businesses own most of these means. Contemporary economic systems are increasingly a mix of market and command systems.