The three economic systems include free market economies, command economies and the mixed economy. Under free market economies, consumer’s choice is considered for what is to be produced, the process of production i.e., how the production will be done is determined by the producer and who will purchase the produced product depends upon the purchasing power of a customer. The market economies work on the principle of direct interaction between the manufacturer and the customer who have come together for their own personal interest (Davies, 2007).
In command economies, only the government under this type of economy decides what is to be produced, how it will be produced and who will be the customer for the produced good or service. Free markets fail at times in utilising the resources efficiently; to overcome this advantage, command economic system is used. In case of natural crisis or disasters, free markets are not able to coordinate and utilise the resources fully and thus fail. The failure in free markets is compensated by the government in command economies.
Mixed economies are a combination of the free market and command economic system. This type of economy may have a private sector or a public sector. Allocation of resources is from the market forces in case of private sector whereas by government in public sector.