UNIVERSITI BRUNEI DARUSSALAM
BE 2403 ECONOMICS FOR NON ECONOMISTS
Free Market and Command Market
Globally, there are at least 4 well known economy systems that are used by countries around the world. They include the traditional market, free market, command market and mixed market. Certainly, the way government policies work and their influence on the economic growth of their country vary depending on which economic system is used. It is also important to note that these different systems of economy management have their own distinct advantages and disadvantages as well. The purpose of this essay is to examine how two of these economic systems work and discuss the pros and cons of each one. The two systems selected for this particular essay are the free market and the command market. Free Market (The United States of America)
A free market is an economic system in which prices are determined by unrestricted competition between privately owned businesses. These businesses use the supply and demand curve to determine the prices of their products and services. The role of a government governing a free market is basically to propose bills, vote on it and if a majority of the members agree, it is signed by the President himself to be put into force. The United States is a good example of this. In that particular country, the discussions and decision making largely happens in the Congress. Every year in Congress, a new fiscal policy is discussed. When this happens, budget allocation for the different government agencies are put into place. The money that is used for these government budgets mainly comes from income taxes imposed on citizens and companies. Income taxes from citizens contribute 46.3%, social security, medicare and other payroll taxes contribute 33% while corporate taxes contribute 12% to the yearly budget. The other remaining 8.2% are from excise taxes, custom duties and other revenues. The main purpose of the fiscal policy is to stimulate and guide the economy, promoting economic growth. The drafts of these budgets are drafted by the executive office of management and budget, who prepares it for the President before the president himself presents it to the Congress. This task is completed by the President all before the first Monday of February each year. After that, the Congressional Budget Office provides information to the Congress to facilitate its review of the budget. Then the Congress using the President’s budget as a simple guideline, develops their own budget proposals. The proposals of Congress members are then discussed and many give reasons to justify why their proposals need to be accepted. The Congress then develops the bills which are passed through to the Senate to be inspected before they send it to the President. The President’s task now is to either to approve, disapprove or allow them to go forward without his approval. By October (the beginning of the Fiscal Year), the Congress and the President must work out and finalize on a budget so that government agencies can continue to spend and function smoothly. In February 2009, a stimulus package was approved to jumpstart the US economy. The main purpose of this was to instill confidence needed to restore economic growth and soften the economic recession. However, the monetary policy of the country is controlled by the federal reserves. Their primary objective is to control inflation and their secondary objective is to stimulate economic growth. The Federal Reserve is also responsible for the monitoring of banking systems in the country. A free market economy is also open to trade with other countries. Trade with other countries are facilitated and regulated through agreements. With these agreements, both countries seek to earn a profit so that more capital will be available for their budget in the following year. However, in certain cases, trade deficits can occur. This happens when the total costs of goods and...
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