Planned Economy vs Free Market

Topics: Market economy, Mixed economy, Market Pages: 2 (630 words) Published: September 9, 2013
The economic problem we face is because humans have a limitless number of wants but there are a limited number of resources, what should be produced, how should it be produced, and for whom should it be produced? The economies created are set up to address this issue with two main solutions: the free market economy and the planned economy. The name free market economy essentially explains itself; businesses are privately owned without intervention from the government. The economic problem is addressed by the forces of supply and demand. This means that, based on the consumer’s choices, producers will choose how much to supply. In a planned economy, the government says what to produce, how much, and for whom in order to please the masses. Everything in this type of economy is owned by the state. Although some countries may lean more towards one type than the other, most of the economies in the world are mixed.

Neither a planned economy nor that of free market is perfect. A free market economy is more successful at motivating competition to occur. Since it is basically every man for himself, every man does in fact work to create a good quality of life. One big advantage is that resources are distributed in a better way using prices, allowing the economy to work more efficiently. However, surpluses and shortages can occur when the demand of one product changes to another. This means that the price of the product in surplus must go down so it is more widely available. Thus, the price of the product in shortage will go up until the other product is bought. Then the production can be switched to that of the product higher in demand. Because this economy is driven by the profit motive, a purely free market economy can be a terrible thing. The big companies will become corrupt and prey on other industries leading to an extreme amount of pollution, high prices, and excessive control. To fix this, like in the United States, government involvement has been integrated...
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