Resource ownership and the level of control determine the ty

Resource ownership and the level of control determine the type of market system used in one’s culture or country. The three basic types of market systems are free market, command market, and mixed market.

Free market—refers to resources and industries owned completely by private individuals. This economy type is driven by the goal of profit determined by consumer demand. In a free market, the government maintains a distant role, only ensuring the market remains stable. The market system has many benefits, but also some drawbacks. These include possible shortages and surpluses due to market fluctuations, income discrepancies that can lead to a society of very rich and very poor, and distribution of public services.

Command market—works through central planning by a government that owns all the resources. Authorities own all resources and establish all facets of the economy, including what and how much is produced, financial compensation to workers, prices of products and who can receive them. The benefits of a true command market system include a similar quality of life—though it tends to be the lowest, not the highest, standard—for all citizens, with little homelessness and no inflation due to government price controls. The command system has a number of drawbacks including limited product selection, needs determined by the government that are truly compatible with what the society requires or wants and the restriction of personal freedoms. When workers do not own the resources, and receive the same amount of compensation regardless of what they do, there is no incentive to improve existing products or make innovations.

Mixed market—most countries in the world employ a mix of free-market and command-market systems. In an ideal mixed market, both the businesses and the government work together to meet the demand for products in the safest and most efficient manner possible. Mixed market systems are favored by a wide range of societies because they can balance diverse economic and political ideals between groups with vastly different views.

Question: Summarize the advantages and disadvantages existing under each of the 3 types of economic systems from the perspectives of both a business owner and a consumer.

Solution

We know there are three kinds of the economic system operated in the economy. That is free market economy, command economy and the mixed economy. Each of this has their own weakness and advantages.

Free market economy

The free market economy the business and households act as self-interest to check how the resources are allocated between them. The real feature of this economic sytem was the absence of government intervention in the market.

Advantages

If consumers can pay the highest price if they want and businesses can charge a higher price for their goods an services.

We can see the most efficient use of resources so that the firms are more competitive

Most of the businesses can invest more in research and development activities of the firm.

Disadvantages

Here we can see a higher income inequality

Reduces the social interest and concentrate on profit motives

Command economy

We know that the command economy means that the economy is controlled and operated by the central government. Here the government is the central feature of this economic system and allocated resources by using the planning system

Advantages

The government monitor all the economic activities by monitoring the economy

The government can concentrate on the overall welfare of the society than the individual

Disadvantages

It is very difficult to satisfy all the needs of the society

Very low levels of innovation and development can take place

Mixed economy

We know that the mixed economy means that the combination of both public and private partnerships. Here the government has some control over the allocation of resources. Here the government have clear monitoring of the business firms and given some priority to the individuals.

Advantages

There is less government intervention so the businesses can operate efficiently

The government will correct the market failure and reduce the monopoly power of the business firms

The government can create the social security programme

Disadvantages

It is argued that some time this economic system can behave too much government intervention on the business

The public limited companies can operate unprofitably.