What is Market Economy?
This economic system emphasizes the freedom of individuals as consumers and suppliers of resources, and allows market forces to determine the allocation of scare resources through the mechanism called price. Based on market demand and supply, consumers are free to buy goods and services of their choice and producers allocate their resources based on the demand.
Decisions made by producers and consumers are greatly influenced by price. An increase in the price of a product without a corresponding increase in cost increase profit; such a result, manufacturers allocate more resources to that particular product. On the other hand, if consumers do not like to buy a product, supply would exceed demand and price would fall, resulting in a lower profit or even a loss can occur to the producer.
Thus, Price plays a major role in a Market Economy. The role of Government is negligible, Consumer choose the products they want and producers allocate their available resources to that products based on the demand for different products.
Producers makes the goods at the lowest cost of production, and consumers gets the Best quality of goods and services at the cheapest prices.
Unites States, Japan and Capitalist countries are the best example for Market Economy.
What is Command Economy?
In a Command Economy, all the economic decision are taken by the government - What to produce, how to produce, and for whom to produce. Thus, all decisions. from the allocation of resources to the distribution of end products. of taken care off by the government. In this type of systems, efficient can be achieved only when demand are accurately estimated and resources allocated accordingly. The government had complete control over the economy, and consumers were just the price takers. The government set output targets for each district and factory and allocated the necessary resources.
Incomes are often more evenly distributed in a Command Economy, in comparison to the other types of economies.
The USSR, Cuba, China and all Communist Country is an example of Command Economy.
Prices are controlled and this allows for greater equality in the economy.
Decisions are taken on the National goals but not on the Individual tastes and preferences.
What is Mixed Economy?
Mixed Economy is an combination of free Market Economy and Command Economy. Here, government controls the price fluctuations to achieve certain objectives such as high level of Employment and Low level of Inflation. A mixed economy uses cost-benefit analysis to answer the fundamental questions discussed earlier - what, how, and for whom to produce. A cost benefit analysis helps to assess the full costs and benefits to society arising from a particular decision or project. Decisions or projects affecting the economy as a whole are taken or accepted only when the social benefits from the decisions of project are greater than the social costs.
In a mixed economy, the government organizes the manufacture or provision of essential goods and services such as education and health care.