Economic system is the interaction of the individuals in the society i.e. consumers and producers, trade groups and the government to resolve the issue of scarcity of resources to satisfy the infinite needs. This is to say that the resources like, labour, land, raw material and capital needs proper allocation. Effective allocation of resource is the responsibility of the economic system. Majorly there are two economic systems. Firstly the free market system wherein the government has limited intervention and secondly the planned or command system wherein government virtually has the full control of the economic system. In case mixture of the two systems is employed, it is termed as mixed economic system. The mechanisms of resource allocation in both the systems are different.
In case of free market system, since the government has limited control over the resources, the resources are allocated efficiently to the products that are in demand. It can be said that the products or services are produced that will result in maximum customer satisfaction. In case of command system, there is intervention by the government in the form of prohibition, tax or subsidies. For example the government put price limit on public goods so that consumption of such goods is maximized and there is no imbalance in production of such goods due to expectation of high profits (Sloman, 2013). The government at the same time give subsidies to merit goods and levy heavy tax on demerit goods. This shows that in Command systems from the viewpoint of government whichever product or service is important for the majority. Further it is ensured that the exploitation is not there both by producers and consumers.