Types of Economies and Economics

Economics is a rewarding field for anyone interested in the cost of goods and services and who enjoys making strategic decisions and analyzing data. There are many career options in a variety of areas that need economists to provide sound reporting and analysis based on data collection and interpretation. Those career options span the public and private sectors, financial services, academics and all levels of government.

According to Chiara Yates, an adjunct faculty and academic partner with Southern New Hampshire University (SNHU), economics is the social science that studies how individuals and countries make decisions on how to use available resources in the most effective way. "Because resources, like time, are scarce, these decisions cause trade-offs. Every time we make a decision, we are applying economics," she said.

Yates has been teaching economics at the university level since 2012, and in addition to her teaching role, has also served SNHU learners as an economics subject matter expert and academic advisor. “We make (economic) decisions based on the concept of scarcity: time scarcity, money scarcity and other types of limited resources,” she said.

What are the 3 Types of Economies?

There are three main types of economic systems known as economies: a command economy, a market economy and a mixed economy. An understanding of the differences in types of economies can help you decide how to deep dive into a potential career working in the field of economics.

• Command Economy – A command economy is an economy in which the government controls all economic activity and transactions. A country with a communist government is an example of a command economy.
  
  
• Market Economy – A market economy is free of all government control. “The economic outcomes are determined by the market forces and the so called ‘invisible hand,’ to use a term coined by philosopher Adam Smith,” Yates said. The invisible hand is a metaphor commonly-used among economists to describe how market forces work together.
  
  
• Mixed Economy – This is a hybrid between the command and market economic systems. A mixed economy can be more command or more mixed depending on the government in question. “Most economies in the world are mixed economies, including the United States,” said Yates.

Which Economic System is Best and Why?

Yates said that most economists favor a market-based economy where the price system determines the outcomes of all market transactions. “In a market-based system, every player enters voluntarily in the transactions if they agree on the price,” she said.

The government sometimes intervenes in the economy to resolve inefficiencies caused by two factors, according to Yates:

• Externalities – These include positive or negative effects caused by transactions, such as pollution caused by driving cars.
• Inequalities – These include situations such as lower wage earners not being able to afford rents, so the government may intervene with rent control or subsidies. Similarly, the government may intervene with unemployment or disability benefits when someone loses their job or is otherwise unable to work.

“Most economies either have a mixed market system or are migrating toward one, like China," she said. She feels this is an indication that a mixed market system seems to work the best.

What are the 3 Main Branches of Economics?

Within the 3 main types of economies, economic decisions, big or small, can be made and applied with knowledge of the three main branches of economics known as applied economics, macroeconomics and microeconomics. The key differences among them, according to Yates, are:

• Applied Economics – This is a branch of economics that uses economic theory and research to plan business decisions and public policy decisions. Some types of applied economics are engineering economics, case studies and simulations.
  
  
• Macroeconomics – This area of economics centers on the economic activity and decisions made within a region or country and at the government level. “In lay terms, macroeconomics deals with government spending and taxation, international trade decisions and how to adjust interest rates to control inflation and unemployment,” Yates said.
  
  
• Microeconomics – This area studies the economics activity and decisions made by households and businesses, such as decisions regarding consumers, consumption and production decisions.

What is the Career Outlook for Economists?

If understanding the types of economies and branches of economics sound interesting to you, there is likely a career option that will be a great fit.

As an economist, there are professional opportunities in virtually every job sector. Whether your interest lies in corporate, for-profit work, government, public service or higher education, a master's degree in economics can open many doors.

• Academic economists – As an academic economist, you could pursue a research career or work as a professor or academic administrator where you might teach others how to interpret and forecast economic trends or analyze data using mathematical models and statistical tools, according to the U.S. Bureau of Labor Statistics (BLS).
  
  
• Government and not-for-profit economists – In this area, you may work as a policy advisor or policy analyst, conduct research or work for the government at the federal, state or local levels. You could also work with international agencies. Working at the governmental level could also allow you opportunities inform policymakers or serve as the policymaker yourself about the impact of laws and other economic decisions, according to BLS.
  
  
• Private sector economists – There are any number of career paths available in the private sector, including working as a consultant, financial economist, research economist, economic forecaster or analyst. You may also work for financial services, investment banks or consulting firms. Advising businesses about economic problems and potential solutions is another role that you might have, BLS said.

With median pay of $113,940 in 2022, according to BLS, the career outlook for economists is strong.* The field is growing at a rate of 6%, BLS also reported, which is faster than the national average.*

Discover what else you can do with an economics degree.

What Type of Major is Economics?

A degree in economics can prepare you for a customizable career that can take you in a variety of directions. Making decisions, working with numbers and understanding why things are happening are hallmark traits of the field of economics.

While you generally need at least a bachelor's degree to work in the field of economics, that degree doesn't have to be an economics degree. According to BLS, bachelor’s degrees in a wide variety of areas including the social sciences, business, mathematics and communications can all provide a strong foundation for graduate-level coursework in economics.

A bachelor’s degree is typically required to work in the field of economics, though most roles require at least a master’s degree, according to BLS. Depending on the role, a doctorate may be necessary.

At the master's degree level, you'll likely advance your communication skills to include communicating economic principles. You may study organizational analysis, data analysis and effective data reporting as well as decision making.

In addition to building core math, reasoning and communication skills, earning a master’s degree in economics could lead to the study of game theory, which includes building skills in negotiation and conflict resolution. Studies in economics also overlap nicely with business skills. For example, you may study economics for business, mathematics and statistics for business or financial reporting and analysis.

Earning a master’s degree in economics will also give you the opportunity to  learn how to build advanced economic models as well as techniques in investigative questioning and how to communicate your findings.

What Skills Do Economists Need?

Strong analytical skills and critical thinking acumen coupled with good reasoning and logic skills will provide you with the foundation needed to thrive as an economics major. Strong math and communication skills are important, too.

Because of the variety of hard and soft skills that make up the field of economics, a career in this area can be quite flexible. You will learn how to apply critical thinking to interpret results and make recommendations. The value of strategic thinking is emphasized. And understanding and explaining human behavior in the context of mathematical modeling is key. These combined skills can lead to any number of satisfying careers with employers big and small.

*Cited job growth projections may not reflect local and/or short-term economic or job conditions and do not guarantee actual job growth. Actual salaries and/or earning potential may be the result of a combination of factors including, but not limited to: years of experience, industry of employment, geographic location, and worker skill.

Marie Morganelli, Ph.D. is an educator, writer and editor.