Types of economic system - Characteristics and similarities
➤ Free Market System
Features of Free Market System
A free market is a market without economic intervention and regulation by the government except to enforce ownership and contracts. It is the opposite of a controlled market, where the government regulates how the means of production, goods, and services are used, priced, or distributed. This is the contemporary use of the term "free market" by economists and in popular culture; the term has had other uses historically.
A free-market economy is an economy where all markets within it are free.
This requires protection of property rights, but no coercive regulation, no coercive subsidization, no coercive government-imposed monopolistic monetary system, and no coercive governmental monopolies.
Try yourself:Which of the following is not a feature of free-market system?
- A free market is a type of economic system that is controlled by the market forces of supply and demand, as opposed to one regulated by government controls.
- It is opposite on the spectrum to a command economy, where a central government agency plans the factors of production and use of resources and sets prices.
- In a free market, companies and resources are owned by private individuals or entities who are free to trade contracts with each other.
➤ Planned Economy
Planned economy (or command economy) is an economic system in which the state or workers' councils manage the economy. It is an economic system in which the central government makes all decisions on the production and consumption of goods and services.
Its most extensive form is referred to as a command economy, centrally planned economy, or command and control economy. In such economies, central economic planning by the state or government controls all major sectors of the economy and formulates all decisions about the use of resources and the distribution of output.
Planners decide what should be produced and direct lower-level enterprises to produce those goods in accordance with national and social objectives.
Planned economies are in contrast to unplanned economies, such as a market economy, where production, distribution, pricing, and investment decisions are made by the private owners of the factors of production based upon their individual interests rather than upon a macroeconomic plan.
Try yourself:Which of the following is not the same as planned economy?
The planned economy is referred to as a command economy, centrally planned economy, or control economy.
➤ Mixed Economy
A mixed economy is an economic system that includes a variety of private and government control, or a mixture of capitalism and socialism.
Mixed Economy Circular Flow Model
There is not one single definition for a mixed economy, but relevant aspects include: A degree of private economic freedom (including privately owned industry) intermingled with centralized economic planning and government regulation (which may include regulation of the market for environmental concerns, social welfare or efficiency, or state ownership and management of some of the means of production for nation or social objectives).
Elements of a mixed economy
- To possess means of production (farms, factories, stores, etc.)
- To participate in managerial decisions (cooperative and participatory economics)
- To travel (needed to transport all the items in commerce, to make deals in person, for workers and owners to go to where needed)
- To buy (items for personal use, for resale; buy whole enterprises to make the organization that creates wealth a form of wealth itself)
- To sell (same as buy)
- To hire (to create organizations that create wealth)
- To fire (to maintain organizations that create wealth)
- To organize (private enterprise for profit, labour unions, workers' and professional associations, non-profit groups, religions, etc.)
- To communicate (free speech, newspapers, books, advertisements, make deals, create business partners, create markets)
- To protest peacefully (marches, petitions, sue the government, make laws friendly to profit making and workers alike, remove pointless inefficiencies to maximize wealth creation) p.s. the only similarity is that mixed economies are a mixture of both planned and market economy.
Try yourself:What is the type of Indian economy?
The planners of Indian Economy adopted the concept of mixed economy. A mixed economy is consists of private and public sectors.