Economic Systems

In this context, it is useful to distinguish among three different systems of production and consumption. Industrial market economies, mixed market-centrally planned systems and economies of developing countries differ in the ways they use resources and how they organize consumption and production. An industrial market system embodies an economic sector in which decisions to produce and consume are made by individuals and industries. Although the government does not make most direct decisions regarding production and consumption, it may steer the process through various indirect measures, such as taxation, quality regulation and limits on wastes such as pollution.

In a mixed market-centrally planned system, significant segments of the economy are subject to government control. Governments directly determine levels and types of production and consumption of certain key goods and services. Decisions derive primarily from political goals rather than supply and demand. In recent years, nearly all centrally planned systems have come to include more and more sectors of the economy that are regulated by market forces. Thus, this type of system must now be defined as a split marketcentrally planned economy.

The coexistence of different systems of production and consumption characterize a third type of economic organization. Developing countries have both a market-based industrial and agricultural sector and a peasant agricultural component. The market sector operates according to standard relations of supply and demand. The peasant agricultural sector is influenced by household needs and decisions that may or may not be determined by market forces.

Real world countries and regions may combine different mixes of these broadly drawn economic categories. For example, developing countries can be compared according to the size of their peasant sectors. Mixed market-centrally planned countries may also contain traditional agricultural sectors, as well as different ratios of market to government- controlled sectors. The general concept of the Social Process Diagram accommodates all these forms of economic organization.