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Outline the main features of a market economy and compare them to a command economy.

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Introduction

´╗┐Economics. 1. Outline the main features of a market economy and compare them to a command economy. For any economic society to survive it must first choose a suitable economic system best suited to the country and will allow the countries people to produce goods and services for the consumer. There are 3 main economic systems that exist in the world today such as a market economy, command economy and mixed economy. No one economy in this world today is either wholly a market economy or command economy. There are only mixed economies, this is because no economy is fully run by the state or has no state intervention whatsoever. All economies though will face the same questions but the way they answer these questions is how these economies differ. These problems are in the form of three different questions ? what will be produced? How will they be produced? Who gets what is produced? A market economy tries to solve these questions with only enough government regulations to protect property rights against theft and aggression. The way it does this is be allowing free play in the market meaning that anyone can take part in the economic activity. This free play system is often referred to as laissez-faire which translates to ?let it be?, meaning that if it isn?t wrong, don?t change it. ...read more.

Middle

surgery/medication/vaccination and could not afford it you would not be given the same service of healthcare as there is no tax-payer funded state health service. If we think of a market economy in terms of goods it means that things people demand will get produced over things that people actually need. For example, if one company produces an amazing drink which everyone loves but it is in fact extremely bad for your health in the long run; but a second company produces a second drink which tastes really bad but will be beneficial for your health in the long run, people will buy the drink which is bad for you, based purely on the fact that it tastes good. Therefore the first company can charge more for their drink as it is in high demand but the second company will have to put their prices down so as to make their drink seem more attractive. The problem with putting the price of your drink down is that over time it will be harder to make a profit so the company may go bust, but before then the company may decide that if it is to stay afloat it is to make something people will want to buy and what people want to buy is the drink that is bad for you. Thusly the second company will create a drink similar to that of the first company; this creates competition between the companies where each will battle it out with their prices to make the biggest profit. ...read more.

Conclusion

This means that the central planner (in the UK this would be the Prime Minister) does not have the ability to discern how much a good should be produced, this is because one person cannot take control over everything and get it all right. Shortages and surpluses are a common consequence of command economies. 1. Which is the best system? In my opinion I don?t believe that one system is truly better or worse than another. I think that the best system is to have a bit of both, but not 50-50. I think there should be more elements of a free market economy than the command economy. The reason I say this is that with a command economy too many people believe that they can just sit back and real on the state to fund their lives as it is too easy for people to get benefits. However, with a market economy there is an incentive to work as the state doesn?t provide citizens with benefits and people actually have to go out and earn a wage to provide for themselves and their family. Also with a market economy consumers send signals to the producers about what they should be creating and in what quantities, resulting in a much more efficient allocation of goods. Although I think we still need to have some input from the government so as all children can have an education and everyone can have access to some sort of healthcare without having to pay the extortionate amounts that would come with a market economy. ...read more.

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