Types of Economies

In the world of economics there are four main types of economies. Each type of economy has a different prioritization of goals. The types are labeled: Traditional, Market, Command, and Mixed. Each type of economy has a differing outlook on how to best represent the values of the community. There is no actual correct economy, only differing approaches on how best to proceed. The following definitions should help you in understanding the four basic types of economies.

Traditional Economy - The traditional economy relies on customs or traditions to address economic issues. Typically speaking it is an economy that does its business in the same fashion it always has. Traditional economies do not change much over time. Furthermore, traditional economies are most often small and localized. For example, a traditional economy in southeast Asia may revolve around a fish market along the Mekong Delta. Tradition holds that a certain type of fish is valued at a specific amount of rice. Fishermen and farmers rely on tradition to determine the values of their goods and services, then trade accordingly in the Mekong Delta region.

Market Economy - The Market Economy relies upon trade between members of the free market. Because the Market Economy is free, any individual is allowed to participate. When there are multiple members trading similar goods or services in a free market, then competition forces the best priced and most efficient businesses to thrive. As a result, the customer or consumer wins because of the competitive nature of the Free Market Economy.

Command Economy - A Command Economy relies on government to control all aspects of economic activity. In regions where the free market does not function well, community members will allow a government to step in and control the economy. Command Economies usually do not offer choice or variation. The goal of a command economy is to provide individuals with basic necessities as opposed to free choices.

Mixed Economy - Mixed Economies rely on a combination of types of economies. For example, a government may have a laissez-faire approach to a particular good or service; meanwhile another good or service becomes highly regulated to influence production, cost, or consumer behavior. Most modern economies rely on some aspects of the command structure while utilizing the free market for other economic activities.