Economic systems determine how goods are produced, who produces those goods and for whom those goods are produced. How those factors are addressed determines the type of economic system. Four main types of economic systems exist, with variations on each type that produce other systems. The economic system in an area is often determined by history, beliefs and government intervention.

Traditional Economy

A traditional economy is typically based on agriculture.
A traditional economy is typically based on agriculture.

A traditional economy, also known as a subsistence economy, often takes place in underdeveloped or third-world countries. Agriculture is typically the main industry in this type of economy. A traditional economy is led by customs and beliefs that impact the way the economy runs, and, often, traditional economies are tied to high poverty levels. Sometimes these types of economies morph into one of the other types over time and break the poverty cycle.

Market Economy

A market economy is also known as a "laissez-faire" economy, where the prices of both goods and services are determined by supply and demand in a free-price system. The amount of goods demanded by the public through purchases and the supply of those demands by the vendor decide price points. Hypothetically, no government interference comes into this system, but realistically, governments do legislate and regulate economic systems. The United States is rooted in market economy principles, but today it is considered a mixed economy.

Command Economy

A command economy is also known as a "planned" economy. In this type of economy, the government dictates and commands every aspect of the economy. The central government makes decisions about the production of goods and the prices of goods and services, and the government makes all the decisions about the distribution of goods and commodities. Examples of command economies include Communist countries. These industries can be government-owned or privately owned by and directed by the government.

Mixed Economy

The system of economics in the United States is a mixed economy, also known as a balanced economy. These economies operate under both government control and private enterprise, and the amount of private control compared to the government control varies by the economy. Many of these economies are fundamentally market economies with regulatory oversight. These economies give business owners and consumers freedom to buy and sell based on supply and demand, but with regulation.