There are three main types of economic systems. In a command (or
planned) economy, the basic economic questions of what to produce, how
to produce and for whom to produce are answered by the central planning
agency of the government. This represents total government intervention
as the government decides what's made how and for whom. The factors of
production are owned by everybody and, in theory, the government
combines these productive inputs in a manner that's best for all. Of
course, this is very difficult to orchestrate, especially considering
the size and intricacies of economies. The collapse of the Soviet Union
and continued move away from command economies illustrates it's
inability to function in reality.
In a pure free or market economy, the forces of supply and demand via the interactions between consumers and producers answers these three questions. Resources are allocated to those that can afford them and factors of production are privately-owned. Because of the profit incentive, there tends to be little waste and, thus, this system is far more efficient than the command economy. There is no government intervention in the pure free market. Because of this, there are too few merit and public goods, too many demerit goods, and not "enough" government protections (arguably).
All economies in reality are mixed. In other words, there are free market elements with some level of government intervention. It is the latter that determines whether or not an economy is closer to command or closer to free. A country like North Korea would be mixed, close to command; Sweden close to the middle thanks to an extensive welfare state; and Singapore would be close to free market because of little government intervention compared to much of the rest of the world.
VIDEO -> http://blog.thinkwell.com/2009/08/overview-of-economic-systems.html
GREAT READ -> http://www.bized.co.uk/learn/economics/notes/systems.htm
Pros of free markets : efficient use of resources (through price mechanism), profit incentives created many high-quality g/s
Pros of command economies : little unemployment, presence of public and merit goods (and fewer demerit goods), resources may be used up at a slower pace, not as many clear winners and losers
Pros of mixed : can mix pros from both!
Cons of each : see pros of other
In a pure free or market economy, the forces of supply and demand via the interactions between consumers and producers answers these three questions. Resources are allocated to those that can afford them and factors of production are privately-owned. Because of the profit incentive, there tends to be little waste and, thus, this system is far more efficient than the command economy. There is no government intervention in the pure free market. Because of this, there are too few merit and public goods, too many demerit goods, and not "enough" government protections (arguably).
All economies in reality are mixed. In other words, there are free market elements with some level of government intervention. It is the latter that determines whether or not an economy is closer to command or closer to free. A country like North Korea would be mixed, close to command; Sweden close to the middle thanks to an extensive welfare state; and Singapore would be close to free market because of little government intervention compared to much of the rest of the world.
VIDEO -> http://blog.thinkwell.com/2009/08/overview-of-economic-systems.html
GREAT READ -> http://www.bized.co.uk/learn/economics/notes/systems.htm
Pros of free markets : efficient use of resources (through price mechanism), profit incentives created many high-quality g/s
Pros of command economies : little unemployment, presence of public and merit goods (and fewer demerit goods), resources may be used up at a slower pace, not as many clear winners and losers
Pros of mixed : can mix pros from both!
Cons of each : see pros of other
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