Types of Economies
There are many different kinds of economies around the world, but they all fall into two basic categories. One category is the command economy which is also called central planning. It has strong government control. The other type is the free market economy which is also called capitalism. In this type of economy, there is very little government control. Currently, all real economies combine parts of capitalism with those of central planning. Each country around the world differs from one another in the amount they use the two systems. For example, the United States and Canada have economic systems that use very little government control so they are usually described as capitalistic.
Command economies have strong government control. So if you wanted to start your own business, you would have to get permission from the government. In a command economy, the government owns most of the industries and companies. One type of command economy is communism. True communism is a type of economic system that doesn't allow ownership of private property. Most of the command economies that existed in the world had strong central governments. These governments dictated how much was made and what was made by industry. The communists believed that life is a class struggle between workers and the owners of a industry or factory. In a communistic economy, goods were distributed on an as-needed-basis. In the command economy, the government makes the decisions as to what goods to supply to the people. The Soviet Union was an example of a communistic command economy. Many people think China is still a communist country. But they, and other countries like them, have given control over some of their economic activities back to the people.
The other basic type of economy is the free market or capitalistic economy. It is an economy that has very little government control. So if you wanted to start your own business, you would not have to get permission from the government. In a free market economy, the consumer decides what they want to buy. A consumer is a customer. The law of supply and demand is what drives the free market economy. Supply and demand is what sets the prices of goods and services in the free market economy. As supply goes up the prices go down. When the demand goes up the prices go up. Due to low government control, people are free to spend their money the way they want to. People can take the risk of starting their own business and losing money or starting their own business and making lots of money. People like James Ford Bell and Will Kellogg took risks in starting their own breakfast cereal businesses. Some examples of countries with a free market economy are The United States of America, Germany, and England.
In the world today free market economies have social programs such as the Social Security System in The United States. Command economies like China are introducing free market economies into their economy. With the information age upon us, only time will tell where the world economies are headed.
Haram,Terence. The Economy. Philadelphia: Chelsea House Publishers, 2002.
Aaron, Henry J. "Economics." World Book Online Reference Center. 2004. World Book, Inc. <http://www.worldbookonline.com/wb/Article?id=ar173340.> (February, 2004).
Images of the stock exchange, factory, and market from "Microsoft Office Online" <http://office.microsoft.com/clipart/default.aspx?cag=1> Images free for non-profit and personal use. (October-February, 2003-2004).
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