Basic Economic Problem

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• Pure market systems are free of government intervention. Price mechanism is how the three questions are answered which makes the consumer soveriegn.  Price acts as a signal, rationing device and incentive and can transfer preference. Firms respond to increased demands to achieve profits. The invisible hand. Assumption is consumers aim to maximise utility

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• 100% government influence and the 3 questions are attempted to be answered by them. Failed experiments in Soviet Union and China - Communists. No consumer or producer soveriegnity. Government decides what, how and for whom the produce goes to. Profit is not an objective. Factories get production targets.

1. Advantages

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   • From each according to ability, to each according to need. Equality No profit so not exploitation
2. Disadvantages

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   • Bureaucratic Slow decisions Unequal Government does not/cannot know what everyone needs Laziness and low productivity as no profit incentive

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• Blend of market and planned economies. Quantity varies massively. Most ecnonomies are mixed. Most efficient as benefits of both government intervention and market forces.