A traditional economy typically carries the classic definition of an underdeveloped system, which uses primitive tools for gathering and disseminating goods. There are three categories of this type of economy, including community, market, and command. A fourth often creates a mix between these traditional economy types. A mixed economy, for example, has elements of both a market and command economy or parts of a community and market economy. Numerous factors influence how a nation builds its economy and creates a system to move resources through the market.
A community economy is not too far removed from the traditional economy. Community members have few methods to transfer goods among the individuals in the local region. In many cases, people use rituals or customs to make choices about growth and changes in the economy. Examples of community economies come from American Indian tribes, Aborigines, and Amazon peoples who live in primitive environments. This system works well because little advancement means no large alterations in the economy and how individuals gather or use goods.
Market economies are the next step in a traditional economy outline. These markets rely on the freedom of individuals to make choices about the collection and use of economic resources. Free from custom and ritual, individuals make decisions that benefit themselves the most. As this continues to occur in a larger manner, more individuals benefit from the market unlike in a basic traditional economy. For example, an individual chooses to start a business to produce a good; by selling low-cost goods to others, many can benefit from just one individual's entrepreneurial actions.
Command economies begin when a government begins to direct the actions of an economy. This typically starts when a traditional economy has a government to act as an overseer. Individuals in the government make directives on how individuals should use resources. Most command economies attempt to reach a natural equilibrium where all individuals have the same goods and fair lifestyles compared to others. Command or heavily controlled economies typically have stricter rules than a traditional economy.
A mixed economy occurs when government plays a large part in a market economy, that is, when the government attempts to regulate the market economy. This is the type that most often grows from a traditional economy. This evolution may provide the best of both worlds in terms of a national economy. Other times, the government simply wants to control the movement and use of goods in a market economy for tax revenue purposes.