An economic system is the organized way a society or government manages the production, allocation, and distribution of goods and services within an economy. It involves the institutions, decision-making processes, and patterns of consumption that collectively determine how resources—such as labor, capital, land, and physical resources—are used and shared among people and organizations
. Every economic system must address four fundamental questions:
- What goods and services should be produced, and in what quantities?
- How should these goods and services be produced, including the choice of methods and resources?
- For whom should the goods and services be produced, meaning how the output is distributed among individuals or groups?
- When should goods be produced, considering factors like seasonal demand and timing for consumer satisfaction
Economic systems are broadly categorized into four main types:
- Traditional economies, based on customs and resource availability
- Command economies, where a central authority controls production and distribution
- Market economies, driven by private ownership and consumer demand
- Mixed economies, combining elements of government control and private enterprise
In essence, an economic system is a social system that coordinates how a community or nation solves the problem of scarcity by deciding what to produce, how to produce it, and who receives the output, thereby shaping the economic structure and functioning of that society
