Economic Systems
This is the term used to describe the type of economy people choose to live
in. We have seen that the market and price mechanism can answer the three
basic economic problems of what to produce? How to produce it? And for
whom? We also know that the market answer to these problems may not
necessarily be considered fair and sometimes it may not work very well.
Societies have a choice of how much they allow a market to work in their
economies. The alternative is to have the government intervene in the
economy and start organizing production and allocation of goods and
services.
Free market/capitalist Mixed Economy Planned/command
USA, Japan UK, Flano, Russia China, North Korea
Cuba
Today there are no economies which can be described as total planned
economies and all have adopted some aspects of the market.
However there are also few economies who try to rely entirely on the market
as it does have problems in some areas.
The thing to remember is that the degree of govt intervention varies in different
countries.
Free market economy:
Def: A free market economy[aka capitalist] is an economy where decisions
on what, how and for whom to produce are left to the operation of the price
mechanism. There is no government intervention.
Features of a free market economy
1. The price mechanism
(rationing distributing the good by price, signalling sending to firms demand of
customers, incentive to attract new firms enter the market since knowing
demand rises)
We have seen how the price mechanism allocates goods and services and
how changes in supply and demand will send signals to firms and consumers.
This is the term used to describe the type of economy people choose to live
in. We have seen that the market and price mechanism can answer the three
basic economic problems of what to produce? How to produce it? And for
whom? We also know that the market answer to these problems may not
necessarily be considered fair and sometimes it may not work very well.
Societies have a choice of how much they allow a market to work in their
economies. The alternative is to have the government intervene in the
economy and start organizing production and allocation of goods and
services.
Free market/capitalist Mixed Economy Planned/command
USA, Japan UK, Flano, Russia China, North Korea
Cuba
Today there are no economies which can be described as total planned
economies and all have adopted some aspects of the market.
However there are also few economies who try to rely entirely on the market
as it does have problems in some areas.
The thing to remember is that the degree of govt intervention varies in different
countries.
Free market economy:
Def: A free market economy[aka capitalist] is an economy where decisions
on what, how and for whom to produce are left to the operation of the price
mechanism. There is no government intervention.
Features of a free market economy
1. The price mechanism
(rationing distributing the good by price, signalling sending to firms demand of
customers, incentive to attract new firms enter the market since knowing
demand rises)
We have seen how the price mechanism allocates goods and services and
how changes in supply and demand will send signals to firms and consumers.
