There are three types of economic systems which are used in countries:
Free Market Economy: they have no public sector, so it has no government control over factors of production - all resources are owned privately. Business produce goods to make a profit. Products should be efficient and of high quality because business will only make products that they know they can sell.
Advantages | Disadvantages |
Consumers are free to choose what they want to buy. | There is no government planning or control over the economy so there could be many uncontrolled economic booms/recessions. |
New businesses are encouraged to set-up in order to make profits. | Businesses might be encouraged to create monopolies in order to increase profits. |
Businesses compete with each other and this could help keep prices low. | - |
Monopoly → a business which controls all of the market for a product.
Command Economy: it is the opposite of market economies. Economic decisions are taken by the government, and all firms and resources are owned by the government; the government decides what to produce and in what quantities. Consumers have little choice and workers could be told where to work and what to perform. The decisions are made for the interest of people, and therefore they don’t want to make a profit.
Advantages | Disadvantages |
There should be work for everybody. | Lack of a profit motive for firms leads to low efficiency. |
Needs of the population are met (but there is little production of luxury goods for the wealthy). | Government may not produce goods which the population want to buy. |
Mixed economy: it combines some features of both; a free-market economy and a command economy. Most countries in the world today are mixed economies - they have both a public and a private sector, so they get the best of both sectors: efficient, competitive firms providing the goods and services people want, and a public providing their welfare needs.
