Economics is the study of how societies handle the distribution of money (wealth) and the production of goods and services. There are several different types of economic systems that historians and economists have identified throughout history, but the study of economics is usually centered around two main concepts, which include microeconomics and macroeconomics. Some key elements of any economic system which are important to understand are supply and demand, the boom and bust cycle, employment and government intervention.
As explain previously, economics is the study of how societies handle the distribution of money (wealth) and the production of goods and services. As such, all economic systems deal with how best to achieve prosperity for citizens and how best to operate the services in a given country. To better understand this concept, economists have identified four basic questions that all economic systems must be able to answer.
- What will be produced?
- How will goods and services be produced?
- Who will get the goods and services that are produced?
- Who will make the decisions regarding what is produced and who gets it?
The three main economic systems (command economy, free market economy and mixed economy) all answer these questions differently. The answers for each economic system help us to better understand their underlying principles and where they fit on the economic spectrum. Click on the links above to read more about each economic system.