Economic System

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Discuss the desirability of the worldwide movement towards the market economy and away from the planned economy.

Globally, compared with command economy, market economy has proved more successful in raising living standard, economic growth and economic efficiency. Here comes the question that to what extent shall we move from planned economy to market economy.

Market economy is an economic system, which resolves the basic economic problem mainly through the market mechanism and limit government role. It relies on the profit motive and consumer sovereignty. In contrast, in a command economy, resources are allocated by the government through a planning process, with large-scale government intervention.

One advantage claimed of a market economy is that there is dynamism. In comparison to planned economy, free market economies have grown at a considerably faster rate than planned economies.

By moving to the market economy, consumers will benefit from more choices of goods and services. There are strong incentives built into the market system to innovate and produce high quality goods. Companies failed to do both are likely to be driven out of the business by more efficient firms. This cannot be achieved in planned economy, which lacks variety of products.

Moreover, the profit motive and competition promote economic efficiency in a market economy. Firms, who produce what consumers want at the lowest possible prices, are rewarded with high profits. But the one’s which do not change their output quickly to reflect what is demand and have high costs (this in turn lead to high prices) are likely to go bankrupt. This provides the producers with the incentive and ability to innovate and expand.

In labour market, workers will increase their chance of earning high wages by developing those skills which are highly demanded, working hard, accepting more responsibility. Those who are not prepared to work, lack the appropriate skills may receive no or low...
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