types of economy

types of economy

COMMAND ECONOMY
1. advantages
  1. greater equality
    1. the state can ensure that everyone can enjoy a minimum standard of living and that no one is extremely rich
  2. macroeconomic stability
    1. the state can ensure that booms and slumps are smoothed out
  3. external benefits and external costs
    1. may be taken into account when planning production
  4. no exploitation
    1. there is no exploitation of workers and consumers by privately owned monolpolies
  5. full employment
    1. the sate can ensure that all workers are employed
2. disadvantages
  1. inefficiency
    1. the absence of the profit motive and competition may result in an inefficient allocation of resources
  2. lack of incentives to take risks
    1. again the absence of the profit motive may reduce incentives for investment
  3. restrictions on freedom of choice
    1. people would be directed into the jobs deemed to be needed by the state
  4. shortages and surpluses
    1. if the state miscalculates supply and demand then there may be excess demand and/or excess supply of goods and services
free market economy
1. disadvantages
  1. inequality
    1. those who own resources are likely to become richer than those who dont own resources
  2. trade cycles
    1. free market economies may suffer from instability in the form of booms and slumps
  3. imperfect information
    1. consumers may be unable to make rational choices if they have inadequate information or if there is asymmetric information
  4. monopolies
    1. there is a danger that a firm may become the sole supplier of a product and then exploit consumers by charging prices higher than the free market equilibrium
  5. externalities
    1. these are costs and benefits to third parties which are not taken into account when goods are produced and consumed
2. ADVANTAGES
  1. consumer sovreignty
    1. this implies that spending decisions by consumers is what gets produced
  2. flexibility
    1. the free market system can respond quickly to changes in consumer wants
  3. no officials
    1. are needed to allocate resources
  4. competition
    1. and the motive of profit help to promote an efficient allocation of resources
  5. increased choice
    1. for consumers compared with a command economy
  6. economic and political freedom
    1. for producers and consumers to own resources
mixed economy
1. ROLE IN WHICH THE STATE PLAYS
  1. defence and internal security
  2. provision of public goods
  3. provision of essential public services, e.g. education and health
  4. redistribution of income from rich to poor

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	Created by Jesse McNab over 6 years ago