Summary 1.1.6 Free Market economies, Mixed Economy and command economy. Marx, Smith and Hayek
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Course
Nature of economicss
Institution
PEARSON (PEARSON)
Free Market Economy - what it is, advantages and disadvatages,
Command Economy - what it is, advatages and disadvantages
Mixed Economy - what it is, advatages and disadvantages
Economic systems
Karl Marx and his beliefes
Adam Smith and his beliefes
Friedrich Hayek and his beliefes
Free Market Economy:
◦Economy is controlled completely by the price(market) mechanism, with no government
intervention
◦E.g supply and demand controlling the price of goods
◦USA can be called a free market economy
◦Advantages:
‣ Business incentive to innovate
‣ Lots of employment opportunity
‣ Desire to work hard
‣ Controlled by the consumer, so is in the consumers best interests
‣ Good quality of goods
‣ Encourages entrepreneurs to take risks
‣ High e ciency
◦Disadvantages:
‣ Lack of bene ts spending
‣ May lose external bene ts of education and healthcare
‣ Increased inequality
Command Economy:
◦Resources are allocated completely by the government by a process called planning
◦China is the largest command economy
◦Advantages:
‣ Low inequality - equal distribution of income
◦Disadvantages:
‣ Low incentive to innovate
‣ No desire to work hard
‣ Lack of choice
‣ Low incentive to take risks
‣ Low e ciency
Mixed Economy:
◦Government intervenes to o set the negative e ects of a free market economy
◦E.g providing education, welfare bene ts and healthcare
◦Most developed countries are mixed economies, for example UK
Economic Systems:
◦Resource allocation has three dimensions:
‣ What is to be produced?
‣ How is it going to be produced?
‣ For whom is it going to be produced?
◦Within an economy system there are various ‘actors’:
‣ Individuals
‣ Groups
‣ Government
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