Disadvantages
In order to function well, command economy requires an enormous amount of information which is difficult to obtain. Beside that, it may not lead to allocate efficiency or productive efficiency due to lack of competition and profit motives. Some time the economy does not respond as well to supply and demand, firms are simply told to produce a certain number of goods or services. Other than that, command economy do not have real incentive for individuals to be innovative, goods are poor quality since there is a lack of profit motive. The worst problem is corruption. The government has the ability to abuse its absolute power and the economy does not respond as well to supply and demand, firms are simply told to produce a certain number of goods or services.
Advantages and Disadvantages of Market Economy
Advantages
One of the advantages of market economy is the market produces a wide variety of goods and services to meet the consumer's wants. For example, firms will produce what people want because it is more profitable whereas anything which is not demanded will be taken out of production. Next, the market system encourages the use of new and better methods and machines to produce goods and services. Other than that, market also encourage efficient use of resources. For example, Profit being the sole motive, will drive the firms to produce goods and services at lower cost and more efficiently. This will lead to firms using latest technology to produce at lower costs.
Disadvantages
By using the market economy system, it will facing the problems of unemployment. For example, businesses in the market economy will only employ those factors of production which will be profitable and thus we may find a lot of unemployment as more machines and less labour will be used to cut cost. Beside that, some time the free market can fail to provide certain goods and services. For example, there may be certain goods which might not be provided for by the market economy. Those which people might want to use but don’t want to pay may not be available because the firms may not find it profitable to produce. Other than that, by using market economy system, consumption of harmful goods may be encouraged. For example, free market economy might find it profitable to provide goods which are in demand and ignore the fact that they might be harmful for the society. Lastly, there will also have the problems of ignore social cost. For example, in the desire to maximize profits, businesses might not consider the social effects of their actions, it will cause the poor to unable to enjoy the good and services.
According to my research, command economy and market economy can be converges into one. Its call mixed economy. Mixed economy is an economic system that includes a mixture of capitalism and socialism. This type of economic system includes a combination of private economic freedom and centralized economic planning and government regulation. There are several advantages and disadvantages of mixed economy.
The advantages of mixed economy
Mixed economy provides free competition. For example, the presence of private enterprise ensures that there is fair competition in the market, and the quality of products and services are not compromised. Next, by using mixed economy, market prices will be well regulated. For example, the government with its regulatory bodies will ensure that the market price do not go beyond its actual price. Beside that, people are given more power by having more say when it comes to the quality and the prices of products and services. On the other hand, mixed economy allows individuals to run their business and make profits but at the same time it places some responsibility on these companies by inducing them to contribute towards the welfare of society. Lastly, by having mixed economy, there is less inequality of income because intent of government is to have a balanced economic growth of an economy. That is why our country is running mixed economy system.
The disadvantages of mixed economy
Of course mixed economic system also have several disadvantages. Mixed economy system has a natural tendency to move further and further away from reliance on competitive market mechanism to greater bureaucratic controls and interventions until the system efficiency goes down to zero and the system breaks down or dictatorships get fairly established to hide inefficiencies and remove all economic and political freedom from the citizens. Other than that, Mixed economic systems delivers neither efficiency goals achievable through competitive market system nor do they bring about fast reduction in poverty incidence and socialistic societies. These cause people can't make their own decisions. Under mixed economy private enterprises have to face lot of difficulty because of various government loopholes like favoritism and bureaucratic nature which is prevalent in mixed economy.
Production Possibility Curve and Demand Curve
A production possibility curve is a graphical representation of the alternative combinations of the amounts of two goods or services that an economy can produce by transferring resources from one good or service to the other. This curve helps in determining what quantity of a nonessential good or a service.
A demand curve is a curve that normally slopes downward towards the of the showing of good or demanded at different levels.
Diagram of Production Possibility curve
A common PPF: increasing opportunity cost
A straight line PPF: constant opportunity cost
An inverted PPF: decreasing opportunity cost
Diagram of Demand curve
In the diagram above the original price of the good was at P1 and the quantity demanded was at Q1. An increase in price to a level of P2 has caused a contraction of demand to a level.
Is it suitable that our country run mixed economic system?
According to my research, Malaysia is running mixed economic system. In my opinion, Malaysia should use mixed economic system. It is because it contain a lot of benefit to our country. For example people can make their own decisions, the government has limited control which is good for structure, and it provides freedoms such as: Enterprise Ownership, Social Welfare, Profit Earnings, Political Freedom. In Malaysia, all national resources are utilized under mixed economy, it will active government support and direction. That is why so far Malaysia economics do not have much problems.
Conclusion
In the conclusion, the degree of government interference in market economies and the increased economic freedom in command economies can be converge into one. It gives a lot of benefit to the country.
by
traze99 (student)
