Market Economy and Planned Economy

Topics: Capitalism, Planned economy, Market economy Pages: 8 (2975 words) Published: March 9, 2013
Essay Assignment

From1760s to 1830s, UK originally completed the industrial revolution and achieved the large-scale production of the machines. And then other European countries followed the UK and finished the industrial revolution. All these greatly promoted the development of the market economy in Europe. From the ending of the 19th century, the major capitalist countries in Europe and the United States had successively entered the stage of monopoly capitalism from the unrestricted competition of the capitalist stage. In order to get more resources, some capitalist countries started twice world wars. After the world war two, United Stated became the most powerful country in the world. And the market economy began to be developed in the all world. At the same time, the planned economy, a completely opposite economic system, had been developed in some socialist countries such as Soviet Union, Cuba and China. Over a period of time, the planned economy showed its persuasive power in these after-war countries and made significant contributions to the economic development of these countries. But after the disintegration of the Soviet Union, the planned economy began to disappear in the world, and there are only two countries in the world who implement the planned economy. In the capitalist world, many countries began to realize that the market economy was not a panacea after the Great Depression of America in 1930s. In today's world, there are no countries that use the pure market economy as its monetary system, and the mixed economy is more popular. In this task, we have to discuss the advantages and disadvantages of the market economy and explore one question: is the market mechanism better than the planned economy as a means of allocating scarce resources? What is the market economy?

According to Chris and Demand (2010), a market economy, as known as capitalism or a free enterprise system, is an economic mechanism in where goods and services are traded freely on an open market. In a market economy, individuals and businesses owners make the supply, product, purchase, and sell decisions by themselves. According to above, we can find the first characteristic of the market economy that is less government intervention. The government in a market economy country does not direct the monetary policies, influence goods’ price and plan the social production. The things that the government needs to do are to keep the its main market stability and make law and policies promote the development of its market. Secondly, without much government intervention, the prices of goods and service are determined by the supply and demand in free markets. Because of the private ownership of capital and freedom of choice, individuals and businesses can organize their consumption or production by their own decisions. So when demand for goods in the market is greater than supply, the goods’ prices will rise, on the contrary, the prices will fall. Thirdly, legitimate competition is encouraged in a market economy. There are so many individuals and businesses activating in the open market, and they provide goods and services for the customer in their own ways. So whatever your business is, you have to face competition. If you want to win the competition, you must improve the quality of your products and services. Fourthly, the high profit motivates individuals and business owners to highly participate in the competition in free market. If individuals and firms except to get high monetary rewards continually, they have to constantly innovate and explore new products and processes. Thus, in a market economy, an entire economic goal of individuals and businesses is to attract customers to buy their products or services at a price that let them get the highest rewards.

The advantages of the market economy
Most countries in today’s world use the market economy as their economic system because they get back many benefits from...
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