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11 Types of Economy

An economy is a system of production, distribution and consumption. This includes systems for the management of resources and production of value as measured by goods, services and quality of life. The following are basic types of economy.

Laissez-faire Capitalism

A system where the government lets economic actors such as companies and labor do whatever they want without interference such as regulations, taxes, privileges or subsidies. In practice, this can't exist for long because under this type of system one firm eventually dominates as a large monopoly that begins to resemble a government. This is an ironic situation where the economy tends to become centrally controlled without government involvement.

Market Economy

A moderate system of capitalism where government involvement in markets is limited to efficiency measures such as competition laws, consumer protection, labor standards and regulation of economic bads. Unlike laissez-faire capitalism, moderate capitalism can be sustained over time as government rules provide stability and a fair competitive framework.

Welfare Capitalism

Welfare capitalism is a market economy that uses taxation to provide a basic quality of life for all residents of a nation in areas as education and healthcare. Welfare capitalism is also known as a social market economy. This is commonly confused with socialism but is not socialism as the means of production is owned by capitalists and the market is left to function by supply and demand. Welfare capitalism is the most common form of economy amongst developed nations.

Mixed Economy

A system that mixes capitalist free markets with elements of socialism such as government control of all or some industries. For example, a government that allows free markets in areas such as consumer products and services but is heavily involved in orchestrating and investing in real estate and heavy industry. In some cases, a nation becomes a mixed economy due to government efforts to intervene in an economic downturn by supporting large companies whereby it may end up owning the firms. This is a slippery slope as it prevents creative destruction whereby non-competitive old firms are replaced with new innovative enterprises.

Crony Capitalism

A system of close ties between politicians and companies whereby cronyism prevents normal economic functions and democratic rule. This can cause low efficiency, waste and destruction of resources. Crony capitalism can also lead to instability and risk as it gives incentives for revolution.

Socialist Economy

A socialist economy is concerned with making things "equal" for all members of society such that the "workers" own the means of production. This effectively means that the government owns everything including production lines, farms, distribution systems and all entities in all industries. This erases the profit motive and there is little incentive to improve things or do things properly. Socialism should not be confused with a mixed economy or welfare capitalism as it provides no avenues for people to accumulate wealth by producing value. The only way to improve your situation in a socialism economy is by rent seeking within the government bureaucracy.

Command Economy

A command economy is a socialist or communist system whereby the state effectively owns everything and all decisions need to be made by the state. This neglects the forces of supply and demand and usually leads to failures such as surpluses, shortages, poor productivity, low efficiency and destruction of resources.

Global Economy

The global economy is the result of integrating the economies of multiple nations with trade and shared infrastructure such as legal and financial systems.

Advanced Economy

A nation with sufficient productive capacity relative to its population based on factors such as its government, institutions, companies, hard infrastructure, health and education systems.

Emerging Economy

A nation with relatively low productive capacity for its population due to a lack of soft infrastructure, hard infrastructure and other factors such as political instability. Many emerging economies are growing and improving their systems such that they are likely to become advanced economies with time.

Traditional Economy

Economic systems based on custom, culture and history. The term traditional economy is always used to refer to small scale systems that exist in a tribal society as opposed the complex economic systems of full fledged civilizations. This being said, all civilizations have various traditional economies as subcomponents that add to production and quality of life. For example, a farmers market in an advanced economy that produces value but isn't a full alternative to the nation's complex and efficient distribution system.
Overview: Economy
Definition (1)
A system of production, distribution and consumption.
Definition (2)
A system for managing resources and delivering value as measured by goods, services and quality of life.
Related Concepts


This is the complete list of articles we have written about economics.
Added Value
Advanced Economy
Adverse Selection
Animal Spirits
Attention Economics
Bank Reserves
Bargaining Power
Barriers To Entry
Behavioral Economics
Behavioral Finance
Bounded Growth
Bounded Rationality
Business Cluster
Business Value
Capital Flight
Capital Goods
Category Killer
Circular Economy
Club Theory
Comparative Advantage
Competitive Parity
Cost Competition
Critical Mass
Customary Pricing
Deadweight Loss
Division Of Labor
Economic Activity
Economic Advantage
Economic Bad
Economic Conditions
Economic Context
Economic Development
Economic Growth
Economic Infrastructure
Economic Problems
Economic Sector
Economic Systems
Economic Theories
Economies Of Density
Economies Of Scale
Excess Burden
Experience Economy
Extreme Value Theory
Factors Of Production
Failure Demand
Fiscal Dominance
Food Sovereignty
Free Market
Gains From Trade
Giffen Good
Happiness Economics
Income Distribution
Industrial Complex
Industrial Economy
Inferior Good
Information Asymmetry
Intangible Goods
Intangible Value
Invisible Hand
Knowledge Economy
Labor Productivity
Long Tail
Marginal Utility
Market Conditions
Market Economy
Market Failure
Market Forces
Market Power
Marketing Economics
Mean Regression
Media Economics
Merit Good
Middle Class
Monetary Policy
Plateau Effect
Predatory Pricing
Price Economics
Price Umbrella
Price War
Pricing Strategy
Profit Motive
Rational Choice Theory
Rent Seeking
Rule Of Three
Search Good
Service Economy
State Capitalism
Sticky Prices
Superior Good
Superior Goods
Supply Shock
Sustainable Economics
Switching Barriers
Threat Of Substitutes
Trade War
Traditional Economy
Uneconomic Growth
Unsought Goods
Value Creation
Veblen Goods
Zero-sum Game
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Schumpeter, Joseph A. "Capitalism, socialism and democracy." Routledge, 2010.
Powell, Martin, ed. "Understanding the mixed economy of welfare." Understanding Welfare: Social, 2019.
Jorgenson, Dale W. "The development of a dual economy." The Economic Journal 71.282 (1961): 309-334.
Reisman, George. "Capitalism: A treatise on economics." Jameson Books, 1998.


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