An economic system is a system of production, resource allocation, and distribution of goods and services within a society or a given geographic area. It includes the combination of the various institutions, agencies, entities, decision-making processes, and patterns of consumption that comprise the economic structure of a given community. As such, an economic system is a type of social system. The mode of production is a related concept. All economic systems have three basic questions to ask: what to produce, how to produce and in what quantities, and who receives the output of production.
The study of economic systems includes how these various agencies and institutions are linked to one another, how information flows between them, and the social relations within the system (including property rights and the structure of management).
The analysis of economic systems traditionally focused on the dichotomies and comparisons between market economies and planned economies, and on the distinctions between capitalism and socialism. Subsequently, the categorization of economic systems expanded to include other topics and models that do not conform to the traditional dichotomy. Today the dominant form of economic organization at the world level is based on market-oriented mixed economies.
Economic systems is the category in the Journal of Economic Literature classification codes that includes the study of such systems. One field that cuts across them is comparative economic systems, which include the following subcategories of different systems:
planning, coordination, and reform
productive enterprises; factor and product markets; prices; population
public economics; financial economics
national income, product, and expenditure; money; inflation
international trade, finance, investment, and aid
consumer economics; welfare and poverty
performance and prospects
natural resources; energy; environment; regional studies
political economy; legal institutions; property rights.
There are multiple components to economic systems. Decision-making structures of an economy determine the use of economic inputs (the factors of production), distribution of output, the level of centralization in decision-making, and who makes these decisions. Decisions might be carried out by industrial councils, by a government agency, or by private owners.
An economic system is a system of production, resource allocation, exchange, and distribution of goods and services in a society or a given geographic area
In one view, every economic system represents an attempt to solve three fundamental and interdependent problems:
What goods and services shall be produced, and in what quantities?
How shall goods and services be produced? That is, by whom and with what resources and technologies?
For whom shall goods and services be produced? That is, who is to enjoy the benefits of the goods and services and how is the total product to be distributed among individuals and groups in the society?
Thus every economy is a system that allocates resources for exchange, production, distribution, and consumption. The system is stabilized through a combination of threat and trust, which are the outcome of institutional arrangements. An economic system possesses the following institutions:
Methods of control over the factors or means of production: this may include ownership of, or property rights to, the means of production and therefore may give rise to claims to the proceeds from production. The means of production may be owned privately, by the state, by those who use them or be held in common.
A decision-making system: this determines who is eligible to make decisions over economic activities. Economic agents with decision-making powers can enter into binding contracts with one another.
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