1.4.2 Economic systems
There are three broad types of economic system:
- market economy
- command (or planned) economy
- mixed economy
The system adopted by any country depends on two inter-related factors: whether the society is collectivist or individualist and whether the political system is democratic or totalitarian. Democracies theoretically operate a market economy in which goods and services are produced by individuals in response to consumer demand: collectivist countries, by contrast, theoretically operate a command economy in which resources are allocated and goods produced according to a government plan.
In practice, there are few purely market or purely command economies: most countries operate a mixed economy with varying proportions of government control over resources. A variant of the mixed economy model is the state-directed economy in which the state does not directly control resource utilisation, but indirectly controls resources through industrial policy. Japan and South Korea are the prime examples of state-directed economies.
In addition to your textbook that explains each of the above types in more detail, two readings are included that provide examples of two countries making the transition, one from a socialist command economy (India) and the other from a communist based command economy (North Korea).
In your text
Hill 2005, Chapter 2, pp. 47-49.
Reading 1.4
Treadgold, T. 2002, 'Tantalising India ', Business Review Weekly ,
10-16 October, pp. 57-58.Reading 1.5
Economist 2002, 'Stitch by stitch to a different world', Economist
27 July, pp. 24-26.
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