Man has unlimited wants which has to be satisfied with limited resources. Over the centuries man has tried to find an answer to this problem. Three distinct different approaches to manage this resource have been attempted.
Traditional - In the traditional approach to managing the economy is giving the highest priority to farming and agriculture. Farming was given the highest importance since that was the biggest employer in the economy. The jobs in this system of economy is passed down from one generation to the next (e.g. a farmers son would be a farmer).There was not much thought given to improving the efficiency or technology of farming in any formal way.
Command – This system of economy functions by the direction of a single central command. Usually this could be a leader (e.g. King , Draconian Dictator, a central council – communist council). The central command decides which industries in an economy are important and the wage rates and allocates number of people for each task in the economy. Interest rates and property ownership and taxation are decided by the central authority. It is characteristic to have extensive research and development centres to improve efficiency and reliability.
Market – In the market system of economics the importance to various sectors of economy are given priority to this potential in giving back profits, thus most profitable industry is given the highest priority. The wage rates, Interest rates are determined by market forces (i.e. Supply and demand). Individuals are free to choose their occupation. Research and development to improve technology is done by private sector.
There is also another hybrid system. Most countries have a similar system of economic management to this.
Mixed system – In the mixed system the priority to industries are set mainly using the market system but are also protected and a social importance is given to certain sectors even though it might not be very profitable. Interest rates and wages are open to market forces but there are certain minimum levels of wages already set and maximum interest rates that are set too.
