Outline the main features of a market economy and compare it to a Command economy.

Authors Avatar

Option E

Robert Catherall                                                          September 2002

Economics                                                                      Mr Dorran

  1. Outline the main features of a market economy and compare it to a Command economy. (10)

For an economic society to survive there must be an economic system that will allow people to produce goods and services for the consumer. There are three main economic systems in the world today such as the free-market economies; the command economies; and the mixed economies.

There are no pure command economies or pure free-market economies in the world today.  There are only mixed economies this is because no economy is purely run by the state and no economy has no state intervention.  All of these economies face the same basic economic problems and how they answer these problems determines which economy is in use in a society.  Theses problems are three questions: what will be produced?; how will they be produced; and who will get what is produced?

A free-market economy tries to solve the basic economic problem by allowing free play in the market.  This means that the state will have very little interference if any with any economic activity that will occur and that anyone can take part in this economic activity.  This system of free play is often described as laissez-faire. The laissez-faire system gives individuals who are called entrepreneurs the freedom of enterprise and choice, which means they are allowed to buy, manage and sell resources wherever they want. This system also means that consumers are allowed to spend their income in any way they want.  This is one of the most important aspects of the free-market economy, as it allows producers to respond to what the consumer really wants by determining how they use their economic resources.  In a free-market economy, entrepreneurs, the producers, respond to the consumers demand.  This is the basis of how the price system works.  The price system is a system of communication between the entrepreneurs and the consumers.  The decisions made by the producers determine the amount supplied of a good or service and the decisions made by the consumers determine the demand of a good or service.  The interactions between the producers’ supply and the consumers’ demand determine the price.  If the supply of a good is low and the demand of the good is high the price of that good will also be high as the entrepreneur will be able to see

Join now!

Another important feature of the free-market economy is private property.  This means that individuals in the economy have the right to own their own property such as capital which are man made aids to production such as land, machinery and buildings.  The entrepreneurs in a free-market economy are allowed to use this capital to make an income by producing goods and services with this capital for the consumers.

A command economy is the complete opposite of a free-market economy when it comes to private property, as there is no private property.  All property and capital are owned by ...

This is a preview of the whole essay