Hello Mr. Sajid and my fellow students. Me and my friend here are going to tell you about the main types of economies. There are three main types of economic systems:
First of all we will discuss the Market Economic System. In these economies, everything is privatised, that is, owned by the public. There is no government intervention. The prices of goods and services are determined by the forces of Supply and Demand. The consumers play a very central role in this type of economy. They are a very big deciding factor over what is being produced in the market and how much it is being charged.
For example, a watch is in high demand and the producers are unable to meet the supply quotas because of shortage of capital, so the shopkeepers will raise the price of the watch. This will a) reduce the sales. The reduced sale will mean that the watches will be in supply till the next shipment of watches b) Increase the profit so that the shopkeepers will be able to send more money to the producers and thus enabling them to make more watches. You will notice that the government has no role what so ever in the market, this also means that it doesnâ€™t influence the price of the goods and services the shopkeepers charge. Now we will discuss the advantages and disadvantages of Market Economic Systems.
The System is very flexible â€“ meaning it can respond to the peopleâ€™s wants very quickly. This also saves resources. For example, if a firm is producing T-Shirts and they are not in demand anymore, the producers can move their resources away from it, saving resources and money.
The Market Economic System encourages inventing better methods and machinery for goods and services. The goal of the firms in a market is to make as much profit as possible so the producers build better machinery to cut production costs.
Companies can save money â€“ there is no need to employ a staff to see what to, how and for whom to produce