Economics- Economics Systems

Economic Systems

A way societies allocate resources to satisfy needs and wants

Purpose

Efficiently allocate resources and coordinate economic activities within a society to meet need and wants

Types of Economic systems

Market, Planned, Mixed

Market Economy Definition

Economic decisions are made by individuals and businesses in response to market forces of supply and demand

Market Economy Features

Private ownership, decentralized decision making, competition, Profit motive/incentive

Examples of Market Economy

USA, UK, Hong Kong

How market Economy Allocate Resources

Consumer Demand for what to produce, Individuals/businesses decide how to produce based on profit motives, For whom to produce is determined by the Purchasing Power of individuals which is influenced by incomes and prices

Planned Economy

Definition- Economic decisons are made by the governement, Features- State ownership, central planning, limited competiton, social welfare motive, Examples- Former Soviet Union, North Korea

How Planned Economy allocate resourses

What to produce- Central planning authority( the government controls and directs economic activities) How to produce- made by the central government For whom to produce- Government objectives, priorities and societal needs

Mixed Economy

Definition: Combination of both market and planned Features: Private and public ownership, government intervention Examples: Canada, Austalia

Merits of Market Economy

Individual freedom, Variety of choices, Innovation, Quick response of firms to consumers needs and wants

Demerits of Market Economy

Non provision of public goods, Susceptible to wasteful competition, Susceptible to producing harmful goods

Merits of Planned Economy

The welfare of all citizens is the primary goal, full employment of available resources, wasteful competition is avoided,

Demerits of a Planned Economy

no freedom of choice for consumers, system is too rigid to adjust when changes occur, Lack of motivation for workers, conflicts of interest can arise

Merits of Mixed Economy

both gov and priv sector can cooperate in offering certain services, Gov discourage the consumption of harmful good, provision of public goods, state enact laws to protect citizens from unfair trading practices

Demerits of mixed economy

too much gov regulation may dampen the free enterprise spirit, some state- onwed industries are allowed to operate inefficiently