World Economic Systems

World Economic Systems

Have you ever had a part time job? Maybe you sold cupcakes or walked dogs. How did you set prices? Where did you find customers? What did you do with your earnings? All these questions relate to economics. Understanding economic systems can help you chart your future as you grow older and explore opportunities in the world.

Lisa F. Young/Shutterstock

Having a job can help teens learn about economics.

The Four Types of Economic Systems

Economic systems developed as a way for societies to deal with scarcity (the condition of lacking supply for the demand of a particular good or service). There are four types of systems: traditional economy, command economy, free market, and mixed market economy.

nimon/Shutterstock

Floating markets in Asia are a traditional way of selling goods.

Shutterstock/Featureflash Photo Agency

Britain’s royal family is a constitutional monarchy.

Adam Smith and the Free Market

In 1776 the Scottish economist Adam Smith published a book called An Inquiry into the Nature and Causes of the Wealth of Nations. This book was the first to argue for a free market. Smith believed people who act in their own best economic interest create the greatest benefit for society. He promoted the laissez-faire approach (practice of allowing markets to operate freely, without government interference; French for “leave alone”). Free trade, he insisted, was the surest way for nations to build wealth. Most countries in the world have some components of a free market system, but no countries have a pure free market system.

Everett Historical/Shutterstock

Adam Smith (1723–1790) was the first free market economist.

Goods and Services

Conclusion

Economic systems exert a powerful influence on everyone’s life. Many choices we make depend upon our economic circumstances. Some systems are fairer than others. A good economic system is one that balances needs with opportunities. It encourages innovation while caring for the most vulnerable. Building such a system remains a work in progress.

Triangular Trade

• The colonial economies were part of an system called the triangular trade. This three-legged trade route linked the Americas, Europe, and Africa.
• Traders moved raw materials, goods, and slaves across the Atlantic Ocean between these points.
• Triangular trade helped colonial industry prosper. Traders brought sugar, molasses, coffee, and rice from Caribbean plantations to the colonies.
• They exchanged these commodities for colonial goods like textiles, rum, cash crops, and firearms.
• Traders brought colonial wealth to Britain then took British-produced goods to West Africa. In West Africa, traders exchanged these goods for slaves.

• The slave traders delivered the slaves to the Caribbean and the colonies. The slaves labored on the plantations raising cash crops like sugar. The cycle began again.