Understanding Economic Systems: Market, Planned, and Mixed

Posted on Mar 3, 2025 in Economy

Economic Systems: An Overview

An economic system is the mechanism used to organize economic activity and resolve the economic problems of resource allocation.

Resource allocation: is the set of decision factors for determining the products we use. Every economic entity considers:

What occurs?: How many inputs and outputs are employed, and the final amount: consumption/production methods, quantity/quality, domestic/international.
How do I produce?: How to combine the factors of production, machinery or labor, private/public initiative, ecological/polluting.
For whom?: Who will consume, considering income distribution.

This system uses market principles to provide answers.

Sovereignty: Freedom of choice for consumers.
Benefit: Entrepreneurs aim to maximize profit.
Scarcity: The scarcer a productive factor, the greater its remuneration.
What is produced?: Private enterprise produces what the market demands.
How is it produced?: In the most efficient way to reduce costs and increase profits.
For whom?: For those who can pay, depending on their level of income.

The ownership of the means of production is private, and the benefit goes to the owner.
Freedom of choice: The main objective is the maximization of individual interest.
No state interference in the economy: The public sector ensures economic freedom through law and public order.
Freedom of producers to enter and exit the market: Consumers and businesses agree.
Remuneration: For the inputs is governed by the law of supply and demand.

The planning agency studies the needs and resources, plans a budget to organize resources and assets for production, and controls prices.

The ownership of the means of production is public.
The ultimate aim is the collective good, with no freedom of action for operators.
The state establishes prices and wages.

The market system primarily allocates resources, but the state inspects, regulates, and intervenes to reduce inequalities.

What occurs?: Demand determines production, except for some goods determined by the government.
For whom?: Main factors of production are considered, but the state intervenes to broaden the reach of some goods and services.
How?: Private-sector efficiency/public-sector production.

Companies and means of production are privately owned, and economic freedom exists.
The state can restrict and ensure the general good.
The aim pursued by this system is individual interest.
Prices of most goods are determined by market supply and demand.