Assess which type of economic system is most effective in allocating scarce resources?

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                                                   28/10/01

Essay:Assess which type of economic system is most effective in allocating scarce resources?

Economic systems are organised sets of procedures used within communities or between communities to govern the production and distribution of goods and services. Economists identify three types of economic systems: traditional (customs, habits, laws, and religious beliefs control decisions), command (government regulates economic activity), and market (individuals control production and distribution resources and make decisions based on the market in which they function). A mixed economy combines elements of these systems.

All economies must answer three significant questions. What goods and services should be produced, how should they be produced and who gets the goods and services that are produced. The key point is who answers these questions in a country. In a command economy they are answered by the government, which means that the government decides upon everything. In a market economy  they are answered by individuals and companies.

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This concept also determines the major difference of the two economic systems which is who owns and controls the physical capital, in other words, who determines the allocation of resources. In a command economy as mentioned before this is entirely the role of the government and in a market economy this is done by private parties.

(In a mixed economy this role is, depending on the country, more or less equally divided between the government and private parties.)

Command economies can also be called centrally planned economies, as a country’s government, not being satisfied with the efficiency and/or fairness ...

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