Free Market, Mixed & Command Economies
- In order to solve the basic economic problem of scarcity, economic systems emerge or are created by different economic agents within the economy
- These agents include consumers, producers, the government, and special interest groups (e.g. environmental or trade unions)
- The economic system aims to allocate the scarce factors of production
- Any economic system needs to decide how to answer the three fundamental economic questions
- What to produce? More weapons for the military, or more schools to educate the children?
- Who to produce for? Only those who can afford to pay for it? Or for everyone in society?
- How to produce it? Should more labour be used, or should the economy focus on using technology instead?
- A free-market economy is an economy that has no government intervention in the allocation of resources or the distribution of goods/services
- A command economy is an economy in which all of the resources are owned by the state and the government controls the distribution of goods/service
- A mixed economy is a blend of the free market and planned economy as individuals, firms and the government own factors of production and distribute goods/services
- Adam Smith, Karl Marx and Friedrich Hayek had very different ideas about how these questions should be answered
The Distinction Between Free Markets, Mixed and Command Economies
Free Markets |
Mixed Economies |
Command Economies |
|
|
|