Traditional System
Behaviour based on tradition, customs, and habits. Property held in common. What, how, and for whom to produce are determined by what happened in the past. Works better in unchanging environments.
For example: communities in the Canadian Arctic.
Command System
Aka. a centrally planned economy. A central authority makes most economic decisions and sets prices. The state owns major industries. Limited consumer choice and minimal competition.
For example: North Korea.
Pure Market System
Aka. free market or capitalism. Individual decisions of consumers and firms collectively allocate resources through unhindered markets. The state only provides legal structure and external defense. Production is driven by consumer demand and profit; goods go to those who can afford them.
Mixed System
Combines elements of all three. Both markets and government affect resource allocation and income distribution. Government enforces ownership and contract law, maintains monetary stability, corrects market failures, provides merit goods such as free health and education, and redistributes income. In practice every economy is mixed.
Market Failure
A situation where the free market does not work well, such as over-exploited natural resources, under-provided public goods, or externalities imposed on society by the private sector.