This essay compares and contrasts main characteristics of free market economy system and mixed economic system. The economic system is considered as an organized way of distributing resources in a particular state by the government. There are four commonly-accepted types of economic systems.
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The essay “Comparative Analysis of Free Market Economy and Mixed Economy” highlights main advantages and limitations of the two prevailing economic systems in a modern world. An economic system comprises the configuration of institutions and organisations that specify property relations within a given society or that channel and influence the distribution of goods and services.
In a traditional economic system, there is no control and everyone can produce goods for themselves. The countries which follow this economic system have low GDP and they have high government regulation of business. On the other hand, a planned economic system is the one where all economic activities are planned by the government of the day. The government has the overall say in how businesses should operate.
A free market economy is defined as “a market without any regulation. In other cases it means markets in which prices are free to reflect supply and demand. Sometimes it means competitive markets free of monopoly or concentration. In a free market economy system, individuals are encouraged to produce and make gains for themselves and the economic system is driven by profit motives. It can also be seen that price mechanism determines the allocation of resources. For instance, the law of demand and supply comes into play. A free market economic system has its own limitations
A mixed economy is regulated and its performance is mainly determined by the economic policies promulgated and implemented by the government.
It can also be seen that price mechanism determines the allocation of resources. For instance, the law of demand and supply comes into play. Basically, in a free market economy, the quantity of products offered in the market is mainly determined by the amount of price the consumers are willing to pay. Kotler and Armstrong (2004) state that the price people are willing to pay for a certain commodity correlates with the quantity of goods supplied. In economics, the law of demand and supply states that the price of the product shapes the quantity of goods that can be produced at a particular period. This law goes on to state that the higher the price, the higher the goods the producers are willing to supply (Benassy, 1988). High price means high supply of products and this entails that high profits are likely to be generated. On the other hand, a mixed economy is a combination of a free market and planned economies. A mixed economy is regulated and its performance is mainly determined by the economic policies promulgated and implemented by the government. To a certain extent, it can be seen that a free market economy is effective compared to a mixed economy. According to Pryor (2006), countries with a business-oriented or free market economic system have a significantly higher rate of economic growth. The main reason for this is that they can generate more revenue from free trade taking place. Unlike in a regulated economy, a free market economic system is liberal and the flow of money is not restricted. In a free market economy, the consumers have a variety of choice of goods offered since the manufacturers of these commodities are mainly concerned with satisfying the needs of the customers. As long as the consumers are willing to pay the price,
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The Financial Crisis In 2008, the global market collapsed, The Bush administration figured out that only government intervention could save the companies whose failure could fetch destructive reactions. American Insurance Group (AIG) and Fannie Mae and Freddie Macare are those two giants which suffered from this crisis.
Infact most economies are mixed, with different levels of government intervention (Alan, 2012). Mixed economies are composed of private businesses that operate a large share of the market. The government comes in given areas of economy, for instance public spending and price regulation.
The essay gives detailed information about advantages and disadvantages of free market economy and mixed economy systems, through the use of the real-world examples. A mixed economy permits parallel operation of private and public entities. In nations that have a free market system, financial freedom promotes high living standards and high wages.
These two parties decide what to produce and what to purchase. A free market economy is based on the forces of demand and supply with little or minimum government intervention in the form of subsidies, taxes and regulation (Kates, 2011:34). The means of labour are privately owned and this enables parties to according to their own self-interests.
The free market economy is characterised by private ownership of property and/or resources, means of production, consumer sovereignty, competition and independent choices. The free market economy is more effective than the mixed economy due to the fact that investors or businesses and the consumers have control over the market, i.e.
The free market economy is well discussed in the following paragraphs.
A free market economy is the type of economy(Slavin, 1989) in which the resources are allocated based on the basic economic law of supply and the demand for them. But reality, this is mainly a theoretical concept because we all know that in every country ,including capitalist ones, there are import restrictions or quotas established to protect the countries' local competitors.
Applied to an economy, perfect competitive economy would refer to a free market where there would be existence of the private enterprises and the price would be determined in the economy by the demand and supply in each of the markets. There would be no intervention on part of the government to control the prices or the quantities in the market. A monopoly market is one in which there is a single seller who would have the entire market power and hence the buyers in the market would be the price takers and would have to pay the monopolist-set price in order to purchase the product.
In the developed world, there are arguments both for and against certain economic systems.
In United States, the two competing economic systems are the free markets systems and the mixed markets economy. The free markets economy is an economic system
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