Cookie Consent by TermsFeed
stock 1863880 1920

4. Types of Economies

Types of economies. How many different types of economies are the and how are resources allocated? This article will define what free market, mixed and command economies are and explain the advantages and disadvantages of each one.

 TYPES OF ECONOMIES, economy, free market, command, mixed economy

Welcome to Simply Economics. This article is the fourth in a series to explain economics to those who want to broaden their scope of the subject. Click here to find out more about the series.


There are 3 main types of economy:

TYPES OF ECONOMIES, economy, free market, command, mixed economy

The majority of economies are mixed economies but the extent to which they are, is varied.


A free market economy is an economy where all the resources are allocated by the price mechanism. This means the decision of what and for who to produce goods for is left to the price mechanism. Generally, in a free market, economic decisions are not made by the government or an active group. Instead, economic decision making is in the hands of individual consumers and producers.

There are no 100% free-market economies in the world today because, in every country, there is government intervention. However, in developing countries such as Thailand, government intervention is very minimal hence they may reflect what a free market economy looks like.


  • There will be an increase in efficiency and lower prices. This is because there is a lot of competition in a free market economy.
  • There are more financial incentives. This because entrepreneurs have more incentive to invest and take risks.


  • Monopolies may form. This is because of high competition which may lead to rival firms going out of business or getting taken over.
  • There will be big swings in the business cycle. This is because there is no government intervention to protect the economy for recessions and unsustainable periods of economic growth.

command economy

A command or centrally planned economy is an economy where the government allocates all resources and there is no use of the price mechanism. This means the decisions of what and who to produce goods for is controlled by the government.

A command economy is good for when a country is in a national crisis as they work effectively. However, the standard of living tends to fall when a command economy is as adopted. An example of a command economy today is North Korea.


  • There are high levels of output. This is because there is co-operation between firms rather than competition. Firms aim to maximise output rather than profit.
  • There is a reduction in inequality. This is because the government controls all workers’ wages.


  • There may be shortages of goods. This is because the price mechanism is unable to operate which leads to an inefficient allocation of resources.
  • There is slow economic growth. In command economies, there is usually little economic growth.


In a mixed economy there are 2 sectors: private and public. Decisions on what and for who to produce goods for are made by both the public and private sectors.

Most developed countries today fall under this category.

A mixed economy has the advantages of the free market and command economies while avoiding their disadvantages. This is because governments intervene in markets when there is a failure. An example of this is government expenditure on education and healthcare.

In conclusion, there are 3 main types of economies: free market, mixed and command. Most developed countries are mixed economies, there are very few command economies and no free market economies.

Feel free to ask any questions and sign up below for the latest updates. Click here for more articles. For more articles in the Economics for Beginners series, click here.

pexels karolina grabowska 4386372 scaled

11. Taxes

This article will go through the different types of taxes and will explain where the…

Read More
5 1 vote
Article Rating
Notify of
Newest Most Voted
Inline Feedbacks
View all comments
Kingsford Kubi
Kingsford Kubi
1 year ago

This lesson is very helpful. I want to learn more on different economies in the world and also the countries names.

Kingsford Kubi
Kingsford Kubi
1 year ago
Reply to  Mateen

Thank you.

Appreciate your assistance.

Could you please assist me with Pdf files?

9 months ago

Curious if there is a look at “economy bases” not sure thats the right term. I’ve been noticing that you have export driven economies like Germany, investment-debt economies like China and Turkey, and Consumption based economies like the US. Are those the only types?

Would love your thoughts, please comment.x