What are the two main types of economic systems?

The two main types of economic systems are identified as a market economy and a command economy. A market economy is characterized by the principles of supply and demand, whereby decisions regarding production, investment, and distribution are made by individuals or businesses operating in free markets. This system allows for consumer preferences to drive economic activity and resource allocation.

In contrast, a command economy, also known as a planned economy, relies on centralized control where the government makes all significant economic decisions. In this system, the government determines what goods should be produced, how much should be made, and the prices that should be charged, often aiming for equitable distribution of resources.

Choosing the correct pair reflects the predominant frameworks in which economies typically operate, with the market economy emphasizing individual choice and competition, and the command economy focusing on government regulation and control. Other economic systems, such as mixed economies or traditional economies, do incorporate elements of both market and command features but are not classified among the two principal systems. Therefore, the distinction between market and command economies provides a clear understanding of the fundamental approaches to economic organization.