Editing Economic system (section)

== Components ==
There are multiple components of an economic system. Decision-making structures of an economy determine the use of economic inputs (the [[factors of production]]), distribution of output, the level of centralization in decision-making and who makes these decisions. Decisions might be carried out by [[Industrial democracy|industrial councils]], by a government agency, or by private owners.

An economic system is a system of production, resource allocation, exchange and distribution of goods and services in a society or a given geographic area. In one view, every economic system represents an attempt to solve three fundamental and interdependent problems:
* What goods and services shall be produced and in what quantities?
* How shall goods and services be produced? That is, by whom and with what resources and technologies?
* For whom shall goods and services be produced? That is, who is to enjoy the benefits of the goods and services and how is the total product to be distributed among individuals and groups in the society?<ref>Paul A Samuelson, ''Economics: An Introductory Analysis'', 1964, International Student Edition, New York: McGraw-Hill and Tokyo: Kōgakusha, p. 15</ref>

Every economy is thus a system that allocates resources for exchange, production, distribution and consumption. The system is stabilized through a combination of threat and trust, which are the outcome of institutional arrangements.<ref>Kenneth E Boulding, ''Economics as a Science'', 1970, New York: McGraw-Hill, pp. 12–15; Sheila C Dow, ''Economic Methodology: An Inquiry'', Oxford: Oxford University Press, p.58</ref>

An economic system possesses the following institutions:
* Methods of control over the factors or [[means of production]]: this may include ownership of, or property rights to, the means of production and therefore may give rise to claims to the proceeds from production. The means of production may be owned privately, by the state, by those who use them, or be held in common.
* A decision-making system: this determines who is eligible to make decisions over [[economic activities]]. Economic agents with decision-making powers can enter into [[binding contract]]s with one another.
* A coordination mechanism: this determines how information is obtained and used in decision-making. The two dominant forms of coordination are planning and markets; planning can be either decentralized or centralized, and the two coordination mechanisms are not mutually exclusive and often co-exist.<ref>S. Douma & H. Schreuder (2013), Economic Approaches to Organizations, 5th edition, Harlow (UK): Pearson</ref>
* An incentive system: this induces and motivates economic agents to engage in productive activities. It can be based on either material reward (compensation or self-interest) or moral suasion (for instance, social prestige or through a democratic decision-making process that binds those involved). The incentive system may encourage specialization and the [[division of labor]].
* Organizational form: there are two basic forms of organization: actors and regulators. Economic actors include households, work gangs and [[production team]]s, firms, [[joint venture|joint-ventures]] and [[cartel]]s. Economically regulative organizations are represented by the state and market authorities; the latter may be private or public entities.
* A distribution system: this allocates the proceeds from productive activity, which is distributed as income among the economic organizations, individuals and groups within society, such as property owners, workers and non-workers, or the state (from taxes).
* A public choice mechanism for law-making, establishing rules, norms and standards and levying taxes. Usually, this is the responsibility of the state, but other means of collective decision-making are possible, such as chambers of commerce or workers' councils.<ref>Paul R Gregory and Robert C Stuart, ''The Global Economy and its Economic Systems'', 2013, Independence, KY: Cengage Learning, pp. 21–47 {{ISBN|1-285-05535-7}}; Erik G Furubotn and Rudolf Richter, ''Institutions and Economic Theory: The Contribution of the New Institutional Economics'', 2000, University of Michigan Press, pp. 6–15, 21 and 30–35 {{ISBN|0-472-08680-4}}; Warren J Samuels, in Joep T J M van der Linden and André J C Manders (editor), ''The Economics of Income Distribution: A Heterodox Approach'', 1999, Cheltenham: Edward Elgar, p. 16 {{ISBN|1-84064-029-4}}</ref>