An economic system is a structured way in which a society or government organizes the production, allocation, and distribution of goods and services within an economy. It involves the institutions, decision-making processes, and patterns of consumption that shape how resources—such as labor, capital, land, and physical resources—are used and distributed among people
. Every economic system addresses four fundamental questions:
- What kinds and quantities of goods and services should be produced?
- How should these goods and services be produced (e.g., labor-intensive or capital-intensive methods)?
- How will the output be distributed among individuals and groups?
- When should goods and services be produced, considering factors like seasonal demand?
Economic systems are essential because they solve the problem of scarcity by determining how to best allocate limited resources to meet the needs and wants of a population. They can be broadly categorized into types such as traditional, command (planned), market, and mixed economies, each differing in how decisions are made and who controls resources
. In summary, an economic system is the framework through which a community or country manages its economic activities, balancing production, distribution, and consumption to sustain its way of life
