Economic Systems
Antonio J Gagnon
Command
Definition: Command Economy is an economy in
which production, investment, prices, and incomes are put
on a market and determined centrally by a government.
Characteristics
The government creates a central economic plan for all sectors and
regions of the country. It starts with a five-year plan to set the
overriding economic and societal goals
The government allocates all resources according to the central plan.
The goal is to use the nation's capital, labor and natural resources in
the most efficient way possible
The central plan sets the priorities for the production of all goods
and services. These include quotas and price controls on all goods
and services
Characteristics
The government owns the monopoly business in industries
deemed essential to the goals of the economy. That usually
includes finance, utilities, and automotive. There is no
domestic competition in these industries
The government creates laws, regulations, and directives
to implement the central plan. Businesses follow the plan's
production and hiring targets instead of responding to the
free market
Advantages: Planned economies mobilize economic
resources quickly, powerfully, and on a large scale. They can
execute massive projects, create industrial power, and meet
social goals
Disadvantages: This rapid mobilization often means
command economies mow down other societal needs. For
example, workers are often told what jobs they must fulfill
and are even discouraged from moving their household.
However, people won't ignore their needs for long due to
lack of innovation. They often develop a shadow
economy, or black market, to buy and sell the things the
command economy isn't producing
Example of location which uses
Command Economy
Iran - The government
controls 60% of the economy
through state-owned businesses.
It uses price controls and
subsidies to regulate the market.
That created recessions, which
could end once the new nuclear
trade deal ends sanctions
Mixed Economy
Definition: A mixed economy is a combination
of market, command, and traditional economic
systems. It has the critical advantages of all three
with few of the disadvantages. This economic
system has three of the six characteristics of a
market economy.
Characteristics
Mixed Economy is the protection of private property. It
allow the free market and laws of supply and demand to
determine prices. Third, it is driven by the motivation of
individual self-interest.
Advantages: It can efficiently allocate goods and services where they are
needed, by allowing prices to measure supply and demand. 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 customer needs more creatively, cheaply or efficiently. It
automatically allocates capital to the most innovative and efficient
producers
Disadvantages: If it has too much free market, it can reward the
competitive members of society and leave others without any government
support. Central planning might do extremely well in mobilizing forces
for defense, creating a government-subsidized monopoly or oligarchy
system. This could also put the country into debt, slowing down economic
growth in the long run. Businesses that are already successful can lobby
the government for more subsidies and tax breaks
Example of location which uses
Mixed Economy
The United States is a good
example of a mixed economy
that was established by its
Constitution. It protects
ownership of private property.
It also limits government
interference in business
operations. That promotes the
innovation that's a hallmark of
a market economy
Free-Market
Definition: A Free Market economy is where
economic decisions are made by the free market. That
means the production of goods and services are
regulated by the laws of supply and demand.
Producers sell their goods and services at the highest
possible price that consumers are willing and able to
pay
Characteristics
Most goods and services are privately-owned. This allows the owners to
make legally binding contracts to buy, sell, lease or rent their property. In
other words, their property gives them the right to profit from ownership
Owners, businesses, consumers, and workers are free to produce, sell and
purchase goods and services in a free market
The forces of competitive pressure keeps prices moderate, and ensure that
goods and services are provided most efficiently. That's because, as soon as
demand increases for a particular item, prices rise thanks to the law of
demand.
Advances: Since a market economy allows the free interplay of
supply and demand, it also ensures the most desired goods and
services are produced. That's because consumers are willing to pay
the highest price for the things they want the most. Businesses will
only produce those things that return a profit. Goods and services
are produced in the most efficient way possible. The most efficient
producers will receive more profit than less efficient ones
Disadvantages: A market economy functions through competition.
However, there are many people in a society who are at a natural
competitive disadvantage, such as the elderly, children, and
mentally or physically challenged people. In addition, the
caretakers of those people are also at a disadvantage, because their
energies and skills are taken up with caretaking, not competing
Examples of location which uses Free
Market
Singapore has a highly
developed trade-oriented
market economy. Singapore's
economy has been ranked as
the most open in the world,
7th least corrupt, most probusiness with low tax rates
and has the third highest percapita in the world.
Sources
~https://simple.m.wikipedia.org/wiki/Command_economy
~https://www.thebalance.com/command-economycharacteristics-pros-cons-and-examples-3305585
~https://www.thebalance.com/mixed-economy-definitionpros-cons-examples-3305594
~https://www.thebalance.com/market-economycharacteristics-examples-pros-cons-3305586
~https://en.m.wikipedia.org/wiki/Economy_of_Singapore
–Antonio Gagnon