Markets and governments have complementary roles in industrialization. Markets are dealing with the growing economics complexity that came with industrialization. Then, governments have to determine the types of economy. a) Identify the type of economics system and explain the economic characteristics of each. Economic systems are normally distinguished by the extent of government involvement in resource allocation and goods production. There are three major types of economic systems such as free-market economy, command economy, and mixed economy. Many countries have a mixed economy to some extent, meaning they combine aspects of market and planned systems. However, the general trend of economic policy can often allow for categorization into one of the other three systems. Free-market economy
A market economy is closely related to capitalism and free enterprise. The demand for goods defines what is produced, and most businesses are privately owned. Those individuals and firms pursue their own self-interest without any central direction and regulations. They are all motivated by profit, where the buyers and sellers are solely responsible for the choices they make. In addition, free-market gives the absolute power to prices to determine the allocation and distribution of goods and services. These prices, in turn, are fixed by the forces of supply and demand of a respective commodity. Only people with sufficient control over resources, and wealth, in particular have the privilege to purchase goods and services, often priced very highly in a free-market economy. The prices, which are the only allocating and distributing factor in this economy, place the poor in an unenviable situation who are gradually thrown out of the system without any access to wealth and the basic needs of subsistence. Furthermore, if the demand is short of the supply of a respective commodity, the price will fall as opposed to a price rise when the supply is inadequate to meet the growing demand of a good or service. The role of the government of nation is only limited to controlling the law and order of a country and to ensure that a ‘fair price’ is charged by the sellers. Therefore, it means that, government having no role in administering the price of a commodity, has to see that the prices taken by the sellers is true and commensurate with the price determined by the forces of demand and supply. Command economy
Command economy is also called as planned economy. It is an economy in which a central government planning either directly and indirectly sets output targets, incomes and prices. Government owns most business, decides on the price of goods and how commodities are distributed. For this type of economy, the basic economic question will be solved by the government. Rather than giving individuals the chance to decide what they want or need, the government decides these questions for the country. It is quite difficult for the individual because it is impossible for them to know exactly what the best is for those citizens. Circumstances, rewards, wages and other monetary benefits like bonus are distributed on the basis of the joint rendering of services. This is how command economy actually eradicates the profit-making at individual levels. It doesn’t help with their workers’ motivation because everyone is given the same amount of goods and the same standard of living. For example, a hard working citizen will not get any benefits from work because they cannot increase their standard of living any greater than it currently is and they will make just as much as a person who exerts little or no effort. Command economy is just opposite to the concept of free-market economy, with respect to the basic money-making approaches. While market economy tends to multiply the wealth of a nation through the gradual process of evolution, command economy system prefers deliberate planning of the entire money-making process for the better...
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