Download Economic Systems By: Jessica Carrier Command main

Economic Systems By: Jessica Carrier Command ● main characteristics of the system ○ A command economy is a system where the government determines what goods are produced, how much are produced, and the price at which they will be sold. ○ A command economy is a key feature of communist societies. ● advantages of the system ○ In a command economy it is possible to adjust production rates to meet the demands of the population and the needs of the people, and control the course of the economy. ○ They can also easily increase the production in most facilities that are not affected by calamity or disaster. This helps maintain the continued flow of products or goods in the marketplace. The increase of production on certain goods helps the communities in overcoming disasters. ○ With this system costs can be kept at a minimum rate. In fact, many countries are using this model because the measures followed are for the people to benefit more than the government. ● disadvantages of the system ○ The government is unable to efficiently allocate goods because of the central planner's inability to discern how much of a good should be produced. ○ Shortages and surpluses are a common consequence of command economies. ○ Price and supply are regulated and monitored by the central government, instead of the government planners and market forces. They also decide on the goods and services to be produced and distributed, so this does not bring the rewards that a person demands. ● an example of a place that uses this system ○ Cuba and North Korea Mixed ● main characteristics of the system in terms of the "essential economic questions". ○ Some private businesses, driven by profit, and some controlled by the government. ○ Mobiles, cars, and computers are private. ○ Provides essential services: police, fire service, defence, social services. ○ Provides Goods and services which can benefit both consumer and society (merit goods). ○ Taxes given to the government ○ Government places limits on the nature of business activity: restricting monopoly, control pollution from factories. ● advantages of the system ○ State provides the essential services ○ Private sector encouraged for profits ○ Competition keeps prices low ○ Consumer choice ○ Inefficient business behavior controlled ● disadvantages of the system ○ Heavy taxes reduce incentives to work hard or make profits ○ Less efficient than private sector ○ Excessive control over business activity can add costs and discourage enterprise ● an example of a place that uses this system ○ China Free Market ● main characteristics of the system in terms of the "essential economic questions". ○ The less the government is involved in free market capitalism, the better off business will be, and then by extension society as a whole. ○ A free market is a market economy based on supply and demand with little or no government control. ○ All resources are privately owned by people and firms. ○ Profit is the main motive of all businesses. ○ There is no government interference in the business activities. ○ Producers are free to produce what they want, how much they want and for whom they want to produce. ○ Consumers are free to choose. ○ Prices are decided by the Price mechanism i.e. the demand and supply of the good/service. ● advantages of the system ○ Free market responds quickly to the people’s wants: Thus, firms will produce what people want because it is more profitable whereas anything which is not demanded will be taken out of production. ○ There will be wide variety of goods and services available in the market to suit everybody’s taste. ○ Efficient use of resources encouraged; Profit being the sole motive will drive the firms to produce goods and services at lower cost and more efficiently. This will lead to firms using latest technology to produce at lower costs. ○ Promotes efficiency in both the private sector and the public sector ○ Better handling of economic crisis ● disadvantages of the system ○ Unemployment; Businesses in the market economy will only employ those factors of production which will be profitable and thus we may find a lot of unemployment as more machines and less labour will be used to cut cost. ○ Certain goods and services may not be provided; There may be certain goods which might not be provided for by the Market economy. Those which people might want to use but don’t want to pay may not be available because the firms may not find it profitable to produce. ○ Consumption of harmful goods may be encouraged; Free market economy might find it profitable to provide goods which are in demand and ignore the fact that they might be harmful for the society. ○ Ignore Social cost; In the desire to maximize profits businesses might not consider the social effects of their actions. ● an example of a place that uses this system ○ Countries that have a market economy are Mexico, United States, United Kingdom, Germany, and Canada . These countries have a market economy because the prices of goods and services are set by supply and demand . Comparisons ● Command vs Free Market ○ While in a Command economy is run completely by the government, in a Free Market economy everything is run by the people. ○ Cannot adjust production rates in a Free Market economy as you can in a Command economy. However, a Free Market economy can respond easily the the needs of the people, something that a Command economy can’t. ○ In a Free Market economy there is a much larger chance for things to go wrong in the production process than in a Command economy. ● Free Market vs Mixed ○ In a Mixed economy the government is still part of the economic system, unlike Free Market economies. ○ Also Unlike Free Market economies, Mixed economies provide essential services. ○ Not everything is owned by the public in a Mixed economy. ● Mixed vs Command ○ In a Mixed economy, unlike in a Command economy, there is the idea of privacy and having private property. ○ Also Unlike Command economies, Mixed economies provide essential services. ○ Mixed economies are not totally controlled by the government, like Command economies. Sources: ● "Command Economy Definition | Investopedia." ​
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