An economic system refers to the structure and composition of production activities. This entails the allocation of economic resources and subsequent distribution of the resultant output from economic activities. The broader definition of an economic system refers to the body of principles through which economic problems such as scarcity are addressed. An economic system is made up of people and institutions and mainly addresses their relationship to the productive resources in the country. The popular forms of economic systems are socialist systems, capitalist systems and mixed economies (Grossman, 2008)
A capitalist economic system is one whereby production of goods and services is aimed at maximizing private profit. The economically productive resources are owned by the private sector. The private sector makes the investment decisions without any government interference and in accordance with the principle of capital accumulation (Eckstein, 2007).
In a socialist economic system, production of goods and services is aimed at merely satisfying demand for goods and services. The economically productive resources are either publicly owned or owned by the workers collectively. Decisions about the level of production are made collectively made and they are aimed at ensuring maximum social benefit.
A mixed economy is a blend of the capitalist and socialist economies. In such an economy, both the government and public sector play a crucial role in determining the level of production, consumption, investment and saving. In a mixed economy, the government has some form of control on the market activities. This is the kind of economy in the United States (Kozak, 2011).
The United States has a three-tier form of government. At the top, of the hierarchy is the federal government which controls national matters especially regarding the movement of capital and determining macroeconomic policies. After the federal government, the country is divided into states. There are fifty states in total and each is headed by a governor. The regional government is responsible for regulating metropolitan economic development. At the bottom, of the tier is the local government which is the ultimate regulatory authority for land and property use.