In general, an economic system consists of individuals, industries, governments, means of production and a medium of exchange (i.e. money) for buying and selling goods and services. How these factors interact and who controls means of production are the main considerations in identifying the different types of economic systems that exist throughout the world.
Types
The main types of economic systems include capitalism, socialism and the mixed economy. The latter features characteristics of capitalism and socialism.
Considerations
The specific characteristics of any economic system vary with the type of economy. A free market capitalist system will differ in many ways from a socialist system.
Capitalism
A capitalist system is based on principles of private property and free enterprise. Buyers and sellers interact in a competitive market based on voluntary transactions, with only minimal government involvement.
Socialism, or Central Planning
In contrast to capitalism, a socialist government takes an active, leading role in structuring and directing the economy. Rather than private property and free enterprise, industries are government-owned. Socialism's goals also include equalizing the distribution of wealth.
Mixed Economy
Under a mixed system, the private sector controls many resources of production, but government has a role in influencing the direction of the economy. The government also provides services such as education and health.
Geography
Many nations, including the United States and much of Europe, have mixed economic systems that vary in the level of government control. Even communist China has introduced capitalist characteristics into its formerly pure socialist system.
