Type of Economies

There are many types of economies around the world, and although each economy functions differently based on a unique set of conditions that exist in the country, they usually fall into 3 categories: market economies, command economies, and mix economies.

Market Economies

Market economies, sometimes also known as free economies, are based on the concept of free markets. In market economies, there are no taxes or tariffs, and no regulation on the trade of goods. In other words, prices for goods and services are determined by the market based on a variety of factors, such as supply, demand, speculation, etc.

Capitalism stems from the idea of free markets, and arguably economic systems undergo the most growth under market economies. However, the idea of market economies are mostly theoretical, as all economic systems that exist today are subject to some level of restriction by governments.

One of the biggest downsides of a market economy is that it allows private corporations to amass large amounts of economic power and leverage. Additionally, it is often seen as unfair, those who succeed economically control most of the wealth.

Command Economies

In a command economy, the economy is heavily or fully controlled by a central authority. The central authority imposes strict rules to control price, supply, imports, exports, etc. Command economies are common in communist countries, as it allows the central authority to exercise control over the economy. In theory, command economies work very well when the central authority has the people’s interest in mind. However, this is rarely the case.

Due to the highly centralized nature of command economies, they are rigid and slow to react to changes in the economy. This makes them vulnerable to economic crises or emergencies.

Some examples of command economies are Nazi Germany, the Soviet Union, North Korea, and China.

Mix Economies

A mixed economy exhibits characteristics of both a market economy and a command economy. Most economies around the world, especially developed nations in the west, are mixed economies. Many often see mixed economies as a compromise which takes the best of both worlds, however practically speaking, mixed economies often have trouble finding a balance between free market and government control.