aThompson, S. Wk 1 Paper
An economic system refers to the way in which the resources of a country are used to produce goods and services, and the manner in which goods and services are distributed for consumption. There are three major mainstream economic systems, and they are: Market economy, Mixed economy, and Planned economics. Economic systems are characterized by role of government, freedom of choice, ownership of resources, price determination, and who gains profits earned. Functions of economic systems are the distribution of finished goods and services, the promotion of economic stability, organization of production and the allocation of resources.
A market economy is an economic system characterized by its approach to answering the three basic economic questions. The three questions are what to produce? How to produce it? How to distribute it? In a market economy, the people own the economic resources of production. In the United States we have the freedom to choose how we use those resources, and what to do with them. Profit Incentives are the driving force behind a market economy. With a market economy the demand and supply change as does the price and production. Raw materials and other factors of production go to the highest bidder through an open market auction process. The role of government is limited so the markets are generally unregulated or less regulated so that the incentive can operate freely and in full.
Mixed economy is a mixture of both the planned and the market economics. They have a private market as well as public governed sector. There is generally no more government intervention in this sector. The government only sets up the basic regulations within the private businesses. Some advantages of a mixed economy are the state can intervene in areas of the economy through the passing of laws. Both the government and the private sector can cooperate in offering certain services; transportation and health care. Disadvantages of a mixed economy are that the government’s regulation may dampen the free enterprise. Some state owned industries are allowed to operate inefficiently, thus wasting resources unlike the planned economic system.
Planned economic systems are where the government owns all economic resources and all the factors of production. A planned economy is one of which major functions, such as production, distribution of goods are controlled by the government. The government owns some or all production facilities and decides what to produce and how the goods will be priced. There is no interplay of the market forces of demand and supply and the pricing mechanism in deciding allocation. The former Soviet Union, China and Cuba were examples of planned economy’s that are no longer. The only country that is currently is North Korea. This economic model discourages citizens from seeking profit and gain. It also prevents monopolies and consumer exploitation, but discouraged individual incentives.
Some advantages to a planned economics is the government posses the information to be able to direct resources where they are most needed. Wasteful competition is avoided. There is a greater emphasis on quality of life than on quantity produced. Some disadvantages are there is lack of incentives for workers results in low morale and efficiency. Managers are also not motivated. There are too, and too much unnecessary procedure and paperwork. Conflicts of interest can arise because what the county needs may not be what the people want.
Several characteristics that all economic systems have in common are the role of the government, freedom of choice, ownership of natural resources, price determination and which sector answers the basic economic questions. While both market economy and command economy are somewhat idealized models, in reality, most national economics are mixed economies.
Thompson, S. Wk 1 Paper
An economic system refers to the way in which the resources of a country are used to produce goods and services, and the manner in which goods and services are distributed for consumption. There are three major mainstream economic systems, and they are: Market economy, Mixed economy, and Planned economics. Economic systems are characterized by role of government, freedom of choice, ownership of resources, price determination, and who gains profits earned. Functions of economic systems are the distribution of finished goods and services, the promotion of economic stability, organization of production and the allocation of resources.
A market economy is an economic system characterized by its approach to answering the three basic economic questions. The three questions are what to produce? How to produce it? How to distribute it? In a market economy, the people own the economic resources of production. In the United States we have the freedom to choose how we use those resources, and what to do with them. Profit Incentives are the driving force behind a market economy. With a market economy the demand and supply change as does the price and production. Raw materials and other factors of production go to the highest bidder through an open market auction process. The role of government is limited so the markets are generally unregulated or less regulated so that the incentive can operate freely and in full.
Mixed economy is a mixture of both the planned and the market economics. They have a private market as well as public governed sector. There is generally no more government intervention in this sector. The government only sets up the basic regulations within the private businesses. Some advantages of a mixed economy are the state can intervene in areas of the economy through the passing of laws. Both the government and the private sector can cooperate in offering certain services; transportation and health care. Disadvantages of a mixed economy are that the government’s regulation may dampen the free enterprise. Some state owned industries are allowed to operate inefficiently, thus wasting resources unlike the planned economic system.
Planned economic systems are where the government owns all economic resources and all the factors of production. A planned economy is one of which major functions, such as production, distribution of goods are controlled by the government. The government owns some or all production facilities and decides what to produce and how the goods will be priced. There is no interplay of the market forces of demand and supply and the pricing mechanism in deciding allocation. The former Soviet Union, China and Cuba were examples of planned economy’s that are no longer. The only country that is currently is North Korea. This economic model discourages citizens from seeking profit and gain. It also prevents monopolies and consumer exploitation, but discouraged individual incentives.
Some advantages to a planned economics is the government posses the information to be able to direct resources where they are most needed. Wasteful competition is avoided. There is a greater emphasis on quality of life than on quantity produced. Some disadvantages are there is lack of incentives for workers results in low morale and efficiency. Managers are also not motivated. There are too, and too much unnecessary procedure and paperwork. Conflicts of interest can arise because what the county needs may not be what the people want.
Several characteristics that all economic systems have in common are the role of the government, freedom of choice, ownership of natural resources, price determination and which sector answers the basic economic questions. While both market economy and command economy are somewhat idealized models, in reality, most national economics are mixed economies.
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