Economic Systems (Brief Descriptions)
A command or “planned” economy is an economic system where economic decisions are made by a centralized planner (usually the government). The centralized planner(s) determine what types of goods and services to produce, the amount to produce, the prices and where to distribute them. The government (or the centralized planner) also owns the land, factories, and machines and decides how the goods and services will be produced. The government decides who will work where, and what machines and raw materials will be available to them. Finally, by establishing the pay and benefits available, it also decides for whom the goods and services will be produced. Through this system, a fairer distribution of income may be achieved, unemployment reduced/eliminated, and the assurance of production of socially useful products. However, unpopular decisions about the future may ...view middle of the document...
Competition leads to the discovery of cheaper production methods. Consumers reward the producers, who provide them with goods and services they want at competitive prices, by buying goods and services from them. Who gets how much is answered by the market as well. The more the producers are able to provide goods and services, the greater their incomes will be. The goods and services produced thus will be of a quality that the consumer wants and not of some distant quality. Individual workers are free to choose the jobs they want. However, goods and services go to those with the most dollars. Businesses may be able to control the market for a good/service.
A mixed economy (also called a dual economy) is an economic system where both the public and the private sector coexist. All decisions regarding the economy are made through both the businesses as well as the government. Canada is a mixed market economy because we have both a strong private sector where the market controls a lot of the economic activity as well as government intervention where needed in order to maintain a strong economic system. All three basic questions (What? How? For Whom?) are answered by both the market forces as well as the centralized planner. This economic system allows a good balance between both the public and the private sector and allows individual economic freedom, along with efficient decision making and a method for developing strong and clear economic goals. However, sometimes it is easy to have wide variations in prices and employment due to the instability of output on a year to year basis (this is more for a market system as well).
A traditional economy is an economic system where all economic decisions are made based on the types of things that were done in the past. All questions (What? How? For Whom?) are answered by passing down the traditions from generation to generation. This system allows for economic, social, and political stability. However, it discourages change of growth, and there is little incentive for individuals to seek better ways of doing things. This results in less development over time.