An “economic system” simply answers the three basic questions of economics:
• What to Produce?
• How to Produce?
• For Whom to Produce?

The main differences between economic systems lie in the answers to these questions:
• Who owns the resources?
• Who incurs the costs of resource utilization?
• Who receives the benefits from resource utilization?

The three economic systems below are purely theoretical. While an economy may be identified primarily with one of these systems, most systems include some elements of all three and are more properly called mixed economies.
• Traditional Economies – A system that answers the economic questions by following what has always been done in the past. These economies are usually characterized by subsistence living and limited trade. (Example: the economy of Ancient Egypt with its reluctance to allow any change)
• Command Economies – The answers to the economic questions above are made by a central authority, usually “the state.” (Example: the economy of the Stalinist era in the USSR)
• Market Economies – Economic questions are answered by buyers and sellers at mutually agreeable terms. Such economies are characterized by the decentralization of decision-making. (Example: the economy of Hong Kong)

In any of these economic systems, there is a Circular Flow of economic activity in which we all are producers or consumers at some point. In this model, there are flows of goods and services, taxes, and land, labor, capital, and entrepreneurship between all of the stakeholders in an economy. This model reflects the mix of our choices and a balanced system that attempts to reflect the wants of the variety of stakeholders.