I believe that the modern approach to defining economic systems is an improvement in comparison to the traditional methods simply because more factors are taken into consideration with the new approach. The modern approach studies the impact of the history, geography, cultural influences, and trade patterns of a particular country on its economy in order to determine the path that system will take and how it will fare. Due to its expansive nature, the modern approach seems to be more accurate and clear. .
The political events of the 1990's make it clear that countries wanted a change from the set systems of capitalism, socialism and communism as they sought better systems and higher efficiency. This again reiterates the advantages of the modern approach as it seeks to study why the former systems collapsed and it's after effects. It is important to understand that the economic system of a country is the summation of other political, environmental and social systems and the modern approach studies the impact of these other systems, which is definitely an improvement from solely studying the economic factors alone.
Defining economic systems is both formidable and almost impossible simply because economies undergo dynamic changes daily due to political and social influences. Economic systems are characterized by many different attributes and it is important that we know all of these before determining the nature of the system itself. The modern approach to studying these systems diverges from the extremes of capitalism and socialism while studying four essential components of all economic systems; structure, market and plan, control and income and finally incentives. .
It is essential that I define these four characteristics before analyzing their impacts on economic outcomes. Structure refers to the different organization of decision- making arrangements. Organization is vital to an economic system because it provides participants with goals, motives and order.
