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COMPARING
ECONOMIC SYSTEMS
PROJECT
By: Rachel Knight
Command
Characteristics
1. The government creates a central economic plan for all sections and regions of the
country. It normally starts with the 5-year plan to set the overriding economic goals.
Goals of the 5-year plan is to generate a strong economic growth, increase
production efficiency and best utilize scarce resources. 2. Government distribute all resources according to the central plan. Goals is to use
the nations capital, labor, and natural resources.
3. The centrally planned economy is also known as command economics and
they operate in direst contrast to free market systems. 4. The government creates the laws that regulate economic activity. These include
regulations, directives, and wager price control to the device used for the central
plan.
Advantages
There great at mobilising economic resources quickly,
effectively, and on a large scale. They are able to
override individual self-interest to achieve a greater
goal for the society. It’s also good at transforming societies to follow the
planners vision.
It can guarantee jobs and income.
Disadvantages
1. Economic efficiency: Since the government fixes wages, workers lack the incentive
to work faster to produce more. Its expensive to run and lacks the flexibility to
adjust quickly to consumers demand and changing economic conditions. 2. Economic freedoms: They sacrifice individual freedoms in order to pursue societal
goals. Sometimes the results from the command economy millions of people get
killed. 3. Economic growth: It doesn’t reward people that had innovation. There is no profit
incentive to encourage entrepreneurship. 4. Central planning have caused leaders in many countries to move away from
command economics and toward mixed economics.
Example
Cuba is largely state-controlled centrally planned
economy overseen by the Cuban government. Though
there remains significant foreign investment and
private enterprise in Cuba. Cuba is owned and run by
the government and most of the labor force is
employed by the state. The Cuban government sets
most prices and rations goods to citizens. Cubans
receive low housing and transportation costs, free
education, and health care and food allowance.
25 Jan. 2014. Web. 29 Sept. 2014.
Mixed
Characteristic
It means that part of the economy is left to the free market and part of it is run by
the government. Most economies are mixed, with vary’s degrees of state intervention. Mixed economies start from the basis of allowing private enterprise to run most
businesses away. Then the government intervenes in certain areas of the economy
such as regulation and spending money on public services. Most mixed economies allow government to have a command role in areas that
safeguard the people and the market itself.
Advantages
It can efficiently allocate goods and services where they
are needed, by allowing prices to measure supply and
demand. It rewards the most efficient producers with the
highest profit, ensuring that customers are getting the
best value for their dollar. It encourages innovation that meets customers needs
more creatively, cheaply or efficiently.
Disadvantages
1. If there is to much free market, it can reward the competitive
members of society and leave others without any government
support. 2. Mixed economies are criticized by free market economists for
allowing too much government intervention. Libertarians argue
that governments make very poor managers of the economy. 3. They are also criticized by Socialists for allowing too much
market forces, leading to inequality and an inefficient distribution
of resources.
Examples
Iceland has a mixed economy with high levels of free trade and
government intervention. In 1990s Iceland commenced extensive
free market reforms, which initially produced strong economic
growth. As a result, Iceland was rated as having some of the world’s
highest levels of economic freedom. In 2006 the economy faced
problems of growing inflation and current account of shortage.
Partly in response, and as a result of earlier improvement, the
financial system expanded rapidly before collapsing entirely in a
sweeping financial crisis.
25 Jan. 2014. Web. 29 Sept. 2014.
Free Market
Characteristics
1. Private Property: Most goods and services are privately owned. This allows the owners to make
legally binding contracts to buy, sell, lease, or rent their property. That means free market has to do
with household and firm because they both go with owning property and selling items. The
household owns the factors of production and they privately own the property. Firm is the
organization that uses resources to produce a product or service, which it then sells. 2. Motive of Self-Interest: The market is driven by everyone trying to sell their goods or services to the
highest bidder, while at the same time paying the least for the goods and services they need. Both the
buyer and seller consider their self-interest so they can have what they need to survive. 3. Competition: Consumers striving their self-interest, have the incentive for lower prices, So the
producers will lower their own prices so the customers will rather go get the item from you than
another place that is selling the same item for a higher price. There’s competition everywhere in the
world because the producers want to get more customers than any other store. 4. Laissez-faire principle expresses a preference for an absence of non-market pressures on prices
and wages, such as those from government taxes and regulation.
Advantages
1. There’s economic efficiency because the free market economy responds efficiently
to rapid change. Producers provide only the goods and services the consumers want
and they put the price on the item of what consumers are willing to pay. 2. Economic freedom because the free market has the highest degree of economic
freedom of any system. Workers work where they want, and what they want to
produce. 3. Economic growth because free market encourages growth. Entrepreneurs are
always looking for opportunities to come up with the next new thing. 4. Additional goals because they offer a wide range of goods and services than any
other system because producers have incentives to meet consumers demand.
Disadvantage
There’s a disadvantage for competition because elderly,
children, and mentally or physically challenged people
are in a disadvantage. The producers have to decide
whether it’s in a larger self-interest to set aside
resources to make sure the elderly, children and
mentally people get their needs met or whether to let
them just fall and not come up with a safer product
because the majority people in the world want that
product. Example
Singapore’s economic freedom score is 89.4. Even
though no country can be completed free Singapore is
the 2nd freest in the 2014 index. Over 20 years
Singapore’s economic freedom has advanced by nearly 3
points. The areas of market openness and limited
government have advanced by double digits. High
levels of trade freedom and regulatory efficiency
continue to underpin Singapore’s competitiveness in
global business and ensure a strong economic growth.
25 Jan. 2014. Web. 29 Sept. 2014.
Comparison Between all 3
Economy Systems
In the command economy the main decision maker is the government. No person may independently
decide to open and run any kind of business. The government decides what goods and services to be
produced. So this economy is communism because the government makes the decisions. An example
of command is when Walmart put K-Mart out of business because now you don’t see any K-Marts and
you see Walmart all over the place. It’s different from free market by free market is where the nations
economics decisions are the result of individual decisions. The prices that you charge for your goods or
services will be influenced by the prices charged by your competitors. An example of free market is
Walmart and Hannaford because Walmart lowers their prices on things so they can get all of the
customers. So this economy is socialism and it’s different from command economy because in
command economy the government makes the decisions while in free market the decisions are made
by the consumers and businesses. In mixed economy private ownership makes the production.
Decisions by consumers and businesses determine the economic activity and that is called
Capitalism. An example of mixed economy is Ricker’s Farm they are privately owned and they can
choose the price of their supplies. The mixed economy is different from the other two systems by
command economy the decisions are made by the government. Free market the decisions are made by
the public and private ownership while mixed economy makes decisions by only private ownership.
References
Amadeo, Kimberly. "Market Economy." About News. US Economy Expert, 7 Apr. 2014. Web. 29 Sept. 2014.
Amadeo, Kimberly. "Command Economy." About News. US Economy Expert, 7 Apr. 2014. Web. 29 Sept. 2014.
Amadeo, Kimberly. "What Is a Mixed Economy?" About News. US Economy Expert, 7 Apr. 2014. Web. 29 Sept. 2014.
The Social Studies Help Center. 10 May 2001. Web. 29 Sept. 2014.
"Wikipedia." Economy of Cuba. 14 Aug. 2008. Web. 29 Sept. 2014.
"Wikipedia." Economy of Iceland. 17 Aug. 2014. Web. 29 Sept. 2014.
"Singapore." 2014 Index of Economic Freedom. 25 Jan. 2014. Web. 29 Sept. 2014.