Free Market Economy versus Mixed Economy University: Tutor Name: Free Market Economy versus Mixed Economy A free market economy involves a very limited role for the government, whereas the mixed economy consists of a mixture of both the free market economy and the command economy, where government virtually controls and regulates the economy (Dwivedi, 2002)…
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they are free to decide on what to produce and purchase in the market respectively. In the free market economy, also known as the laissez-faire economy, the producers decide on what to produce as per the market demand and prices. In the latter, the government plays a very limited role in terms of deciding what is to be produced. In this case, the government has little or no command to direct on what goods and/or services are to be produced. However, in a command economy, the government has high command and control over dictating what types of goods and services are to be produced for the market, and the amounts to be produced. On the other hand, the mixed economy is likely to be characterised by conflict since the economy is controlled by both the market forces and the government in terms of determining the types of goods and services to be produced. The mixed market economy is based on decision making by individuals and businesses for the private sector, and government decisions and regulation for the public sector (Anderton, 2012). Free market economies are likely to be more effective due to the dynamics in the market decision making, i.e. the consumers dictate what is to be produced in terms of consumption demand in goods and services. The producers will choose the best cost-effective method of production for higher profit, and firms produce goods and services in terms of consumer demands and tastes, i.e. they produce goods and services which consumers are willing and able to purchase. The free market is effective due to the existence of healthy competition that allows for opportunities for profit making for firms and businesses, and at the same time ensures consumer satisfaction. The free market responds quickly to consumer demands, where goods and services are produced and delivered with due regard to demand. The mixed economy is likely to be characterised by conflict due to override of authority, by either the government or individuals and businesses, in the determination of the allocation of goods and services. In the mixed economy, the government influences the market through taxation rates and setting laws to regulate the market economy. Additionally, the government provides basic services for communities, such as healthcare, education and policing, and hence hinders the investment in these sectors by individuals in the private sector. However, the government plays a critical role in regulating business and market standards for the facilitation of healthy competition in the private sector and consumer satisfaction. The government is also effective in controlling the consumption of harmful goods through illegality declaration or high taxing (Gillespie, 2012). In the mixed economy, the government easily influences the aggregate market demand in its attempts to manipulate its budget deficits or surplus, known as the fiscal policy, for the realisation of economic goals (Rodrik, 2011). The free market economy is more effective, for it creates opportunities for innovation and welfare improvement in both the individual and public interests, where individuals are allowed to make independent decisions that affect their own wellbeing (Rodrik, 2011). Individual consumers have the capability to make institutional arrangements for the enhancement of suitable interaction
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