COMPARE ECONOMIC SYSTEMS.

Economics is another way that the world is organized into regions. Economic systems are formed based on the way that people earn a living and use resources. There are three main types of economic systems: subsistence economies, market economies, and command economies. Let's define each of these systems.

A subsistence economy is the most basic economic system. In this type of economy, people produce goods for their own use. A family might grow just enough food for themselves. They may also produce their own clothing and build their own basic shelter. Since there is very little extra of what they produce, there is very little exchange of goods. As you might guess, this type of economy is mostly found in the rural areas of the poorest countries of the world.

A command economy is controlled by the government. In this economic system, the government decides what products to produce, where to produce them, and the price of the items. Prices are not based on the forces of supply (how much there is) and demand (how much people want). Instead, the prices are based on other factors. For example, it may cost $2.25 to produce a gallon of milk, but because the government wants everyone to have milk they might set the price at $1.00 a gallon. This means that the extra $1.25 must be paid for through some other channel, which is decided on by the government. Generally there is a limited variety of products produced in a command economy; there is also very little private ownership of business. The government decides which occupations are available and assigns individuals or groups to particular occupations.

A market economy is an economic system in which the people freely choose what they want to buy or sell based on the resources that are available. People and businesses decide for themselves which goods they wish to produce. Their choices are usually based on a number of factors, but ultimately goods are produced that provide a profit to the producer. The forces of supply and demand are the leading factors in determining price; if there is a lot of a particular product, but not very many people want to buy it, the price is low. If there is not very much of a particular product, and a lot of people want to buy it, the price is high.

This work is licensed under a Creative Commons Attribution-Noncommercial-Share Alike 3.0 Unported License. For more information about this and other OCW projects at BYU, visit http://ocw.byu.edu.