In modern economic theory, there are four types of basic economic systems. A free market economy is a system based on the principles of free enterprise, competition, and contractual relations between business entities. In such an economic system, state intervention in economic activity is limited. This is a characteristic difference of this system from the other three.
In the modern world, there are no examples of a purely pronounced market economy; in modern states, a mixed economic system most often prevails. The second type of economic organization is the command or planned economy. This system is significantly different from the free one since the state owns almost all economic resources. The economy is managed through the state plan, which creates additional control that is not present in a free economy.
The third system is a mixed economy, combining elements from different economic systems. The state and the private sector play an essential role in the production, distribution, exchange, and consumption of all resources and material goods. Such a system combines the free system by adding state control, resulting in a more controlled but less free system. The fourth type is the traditional economy – the earliest economic system in which traditions and customs play a significant role in creation, exchange, and distribution. Manual labor is also widespread in it. This type of system is the most outdated and inefficient compared to all of the above.
The best economic system is the mixed one because it combines the advantages of different systems. This is its main advantage, however, there are several advantages over others. For example, it “does not block the private sector from profit-seeking, but do regulate business and may nationalize industries that provide a public good” (The Investopedia team). In addition, it is only in this system that the state ensures the protection of competition and limits the creation of monopolies. A mixed economy is a subject, therefore, it functions naturally without aiming at something specific, as in a command economy.
The Investopedia team. Mixed Economic System: Characteristics, Examples, Pros & Cons, Investopedia, 2022, Web.