IGCSE BUSINESS STUDY TOPIC : Types of economic systems | Planned, Market and mixed

 

Market Economy/Free Market EconomyFeatures

Features

• All the resources in a market economy are privately owned by people and firms.
• Every business will aim to make as much profit as possible i.e. profit is the main motive.
• There is consumer sovereignty.
• Firms will only produce those goods which consumers want and are willing to pay for.
• Price is determined through the price mechanism

Advantages

• Market economies responds quickly to people’s wants
• Factors of production which are profitable will only be employed.
• There is wide variety of goods and services in the market.
• New and better methods of production are encouraged thus leading to lower cost of goods and services.

Disadvantages

• Public goods may not be provided for in Market economy, thus the government will have to interfere to provide these types of goods.
• Market economies encourage consumption of harmful goods
• Prices are determined by the demand and supply of goods.
• Social cost may not be considered while producing goods and services.It may lead to unemployment because machines will be more productive than men.

Planned Economy/ Command Economy

Features

• Government decides how all scarce resources were to be used.
• Government will decide what is to be produced, how much to be produced and how much should be charged for goods and services.
• The economy only has Public Sector.

Advantages

• There is no competition between firms thus resulting in less wastage.
• Government ensures that everybody is employed.
• Less gap between poor and rich

Disadvantages

• No incentives for businesses to produce.
• Production of goods is decided by government thus there is no consumer sovereignty.
• Businesses usually are less efficient because of lack of profit motive.

Mixed economy

Features

Mixed economy is a combination of market economy as well as government planning.
It has both private sector and public sector.Some businesses are owned by private individuals while some businesses are owned by the government. India, Indonesia is examples of mixed economies.
Mixed economy attempts to overcome the disadvantages of a market economic system by using government intervention to control or regulate different markets.