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THREE ECONOMIC SYSTEMS
Desiree Broadway
FREE MARKET ECONOMY
A market economy is based on supply and demand with little or no government control. A completely free market
is an idealized form of a market economy where buyers and sellers are allowed to transact freely (i.e. buy/sell/trade)
based on a mutual agreement on price without state intervention in the form of taxes, subsidies or regulation.
CHARACTERISTICS
Cooperative and peaceful process
Individuals are free to choose their own work
Individuals are free to be investors
Individuals are free to be entrepreneurs
Individuals are free to create capital formation
Individuals are free to earn profits
Individuals are free to compete
Individuals are free to buy, earn, use and sell private property
Individuals are free to set prices
ADVANTAGES
Free market responds quickly to people's wants. Produce what
people want because it's more profitable, anything not demanded
is taken out of productions.
There's a wide variety of goods and services. A wide variety suits
everyone's taste and keeps everyone happy.
Free market uses resources efficiently. Profit drives firms to
produce goods and services at lower cost and more efficiently.
The latest technology is used to produce so cost is lower.
DISADVANTAGES
Unemployment: only hire profitable people thus, some are left
unemployed.
Certain goods and services may not be provided: ones people want
to use but don't want to pay for. (Ex. street lighting may not be
provided by firms)
Consumption of harmful goods may be encouraged: might produce
goods in demand that may not be good for the society.
Ignore social cost: businesses looking to maximize might not consider
social effects of their actions.
PLACES THAT USE FREE MARKET
Singapore ranks 85.7% free market. The country imposes no
tariffs, and few restrictions on investments. They have strong
private property rights.
Australia ranks 82.7% free market. They have low tariffs and
strong private property rights. Their government provides
businesses with lots of flexibility.
The United States ranks 82% free market. They feature the
worlds most advanced financial markets. The country providers
free trade with much of the world.
COMMAND ECONOMY
A command economy is an economy in which the government has the power over the financial
management of the country.
CHARACTERISTICS
The government is in control of the pricing of goods and services
The government makes all decisions for finances in the country
Since hourly rate of pay is regulated, people will tend to try to
break the rules (ex. selling stuff in the black market for money)
The state has absolute power over all resources
People in power give orders to buyers
ADVANTAGES
Low payment rate due to the regulation of jobs by the
government
People all have access to health care services and necessary
services needed to live
Quick decisions are made by state or government officials
DISASVANTAGES
The needs of society are often ignored for the betterment of the economy
The black market explodes in a command economy. Due to the governmental
restrictions, good and services that are not offered in the command economy
begin being offered on the black market.
The amounts of goods being produced are not balanced. One item will be mass
produced whereas another will not have enough to support the economic needs.
The government entity that controls the economy has difficulty obtaining up-todate information about the needs of the consumers.
Exporting goods becomes problematic because it is difficult for the controlling
entity to determine which products and prices will be most successful within the
global market.
PLACES THAT USE COMMAND ECONOMY
Countries with Command Economies include:
Burma
Cuba
Iran
Liberia
North Korea
Formerly, the Soviet Union and China were command economies, and are now
mixed economies where the government still has a major influence.
MIXED ECONOMY
A mixed economy is variously defined as an economic system consisting of a mixture of either markets and
economic planning, public ownership and private ownership, or free markets and economic interventionism.
CHARACTERISTICS
to possess means of production (farms, factories, stores, etc.)
to participate in managerial decisions (cooperative and participatory economics)
to travel (needed to transport all the items in commerce, to make deals in person, for workers and owners to go to where needed)
to buy (items for personal use, for resale; buy whole enterprises to make the organization that creates wealth a form of wealth itself)
to sell (same as buy)
to hire (to create organizations that create wealth)
to fire (to maintain organizations that create wealth)
to organize (private enterprise for profit, labor unions, workers' and professional associations, non-profit groups, religions, etc.)
to communicate (free speech, newspapers, books, advertisements, make deals, create business partners, create markets)
to protest peacefully (marches, petitions, sue the government, make laws friendly to profit making and workers alike, remove pointless
inefficiencies to maximize wealth creation)
private sector business activity encouraged.
state control resources in supply of certain goods and services.
taxes used to collect revenue to pay for state goods and services.
ADVANTAGES
Mixed economies allow a lot more freedoms than command economies, such as
the freedom to possess the means of production; to participate in managerial
decisions; to buy, sell, fire, and hire as needed; and for employees to organize and
protest peacefully.
Mixed economies have a high level of state participation and spending, leading to
tax-funded libraries, schools, hospitals, roads, utilities, legal assistance, welfare, and
social security.
Various restrictions on business are made for the greater good, such as
environmental regulation, labor regulation, antitrust and intellectual property laws.
The ideal combination of these freedoms and restrictions is meant to ensure the
maximum standard of living for the population as a whole.
DISASVANTAGES
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
PLACES THAT USE MIXED ECONOMY
Iceland
Sweden
France
United Kingdom
United States
Russia
China
Hong Kong
FREE MARKET VS. COMMAND ECONOMY
"Free Market and Command Economy occupy two polar
extremes in the organization of economic activity. Differences in
division of labor or factors of production and mechanism to
determine prices. The Free Market is unplanned. Its not organized
by any central authority. It's determined by the supply and
demand of goods and services. A Command Economy is
organized by government officials who also own and direct the
factors of production."
FREE MARKET VS. MIXED ECONOMY
" Free Market has less intervention of the government as
opposed to the Mixed Economy. In the Free Market consumers
and businesses can take free decisions on what to purchase and
what to produce. Whereas in a Mixed Economy the production,
distribution and other activities are limited for free decisions and
both private and government interventions a visible."
MIXED ECONOMY VS COMMAND ECONOMY
"A command economy and a mixed economy are two different economic
systems. One system is controlled by the government, while the other economic
system is only partly run by the government."
"A command economy, or planned economy, is an economic system where the
government has control over the production and pricing of goods and services.
The government decides which goods and services to produce, the production
and distribution method, and the prices of goods and services. This economic
system is unlike a free market economy. In a free market economic system, the
economy is based on the powers of supply and demand with little or no
government intervention. A mixed economy brings together a command
economy and a free market economy."
"A mixed economic system has features of both a command and a free market
system. A mixed economy is partly controlled by the government and partly
based on the forces of supply and demand. Generally, a mixed economic system
involves the public sector and the private sector. There is limited government
regulation in a mixed economy, while there is heavy government regulation and
control in a command economy."
Citations
"Advantages and Disadvantages of Command Economy." The Insurance Advice. N.p., 26 Jan. 2014. Web. 08 Oct.
2015.
"Command Economy." - Simple English Wikipedia, the Free Encyclopedia. N.p., n.d. Web. 08 Oct. 2015.
"Characteristics." Characteristics of Mixed Economy. Wikia, n.d. Web.
"Mixed Economy." Economics Help. N.p., n.d. Web. 08 Oct. 2015.
"What are some Examples of Free Market Economies?" Investopedia. N.p., 09 Apr. 2015. Web. 07 Oct. 2015.
"Market Economic System Feature Advantages and Disadvantages" Market Economic System Feature Advantages
and Disadvantages. N.p., n. d. Web. 07 Oct. 2015.
"What's the Difference between a Market Economy and a Command Economy?" Investopedia. N.p., 03 Oct.
2015.
"Dr. Lameiro's Characteristics of a Free Market Gerard Lameiro" Dr. Lameiro's Characteristics of a Free Market
Gerard Lameiro. N.p., n.d. Web. 07. Oct. 2015.
"What Is the Difference between a Command Economy and a Mixed Economy?" Investopedia. N.p., 30 Mar. 2015.
Web. 08 Oct. 2015.