Economic Systems Definitions
In addition to understanding the basic terms associated with economics, you'll also need to familiarize yourself with different economic systems. An economic system is the way that production within a society occurs. It involves how goods or services are produced, distributed, and managed within the society. Here are the economic systems you should be familiar with. Note: Sometimes people conflate (confuse) some of these economic system terms with political system terms.
Capitalism - Capitalism is the economic system many are already familiar with. The purpose of capitalism is to ensure that production occurs that maximizes profit and is characterized by competition against other producers within the system. The means of production are privately held.
Socialism - Socialism is an economic system in which the means of production are held in common amongst members. There are many different types of socialism, and some types of socialism (communism, for example) are also political theories.
Market Economy - A market economy is an economy in which there is a strong division of labor (someone owns the restaurant, someone manages the restaurant, yet other people carry out the tasks of cooking and waiting tables); supply and demand is what allows individuals to set prices.
Supply and Demand - Associated with market economies and setting price points, supply is the number of goods or services produced and demand is the number of consumers wanting the goods or services. The higher the demand and the lower the supply, the more expensive an item will be whereas the higher the supply and the lower the demand, the lower the price.
Traditional Economy - A traditional economy is based on agriculture. "Traditional" economies are based upon family customs and do not rely upon market strategies.
Mixed Economy - A mixed economy is one which combines elements of both capitalist societies and socialist societies. Mixed economies feature some elements of the ideals of capitalism and private ownership of the means of production along with elements of the ideals of socialism with the public (governmental) ownership of the means of production.
Planned Economy - A planned economy is an economy in which the state directs the economy. This means that the state will determine how goods will be produced and to whom the goods will be distributed.
Gift Economy - A gift economy is one in which goods and services are freely given to others without any expectations for returns of the favor.
Barter Economy - A barter economy is one in which goods and services are traded for other goods and services without an intermediary form of payment (like money).