WHAT to produce
HOW to produce
WHOM to produce for
Free Market Economy also known simply as the Market Economy. Resource Allocation
Free market system is basically governed by consumers of the market. These are known as market forces. Their main aim is profit & the firms are all privately owned.
Advantages: provides a wide array of goods & services.
Responds quickly to consumer’s demands.
Encourages use of better methods and machines to produce better goods ad services.
Disadvantages: factors of production are employed only if it is profitable to do so. The consumption of harmful goods & services may be encouraged. The social effects of production may be ignored. Some necessary goods and services may not be produced simply because it is not profitable to do so.
Planned Economies: Basically the government decides whom to produce etc.
Disadvantages: Governments produced what they wanted & not what the people wanted. Even if this was produced-poor quality-as none of the workers have an incentive of profit to work & thus it will be of mediocre quality.
Mixed economy system: Private Sector & Public Sector. Private Sector involves profit- making organization whereas Public sector involves Government controlled organizations.
Advantages: Market economies sometimes have unemployment as it may be non profitable to employ people but in a mixed economy, governments can create jobs in the public sector. Governments can restrict the use of harmful goods and services. Public goods will be given such as street lighting and defense. To protect and minimize social costs, the government can protect the environment for example by imposing heavy taxes of firms that have high garbage yield. Being fair to the poor and the rich. As in employment benefits, etc.
Types of integration
Horizontal integration: firms involved in the production of...