Economic systems refer to methods used by governments and societies to organize the production, distribution, and consumption of services and goods. They help to control the economic activities of individuals and companies, and the allocation of products. The following passages will discuss the three types of economic systems, planned, mixed, and market economy as well as their impact on society.
A command economy is a system in which the central authority, usually the government, controls much of the economic decisions. Therefore, the government is responsible for determining what, how, and for whom products and services are produced. In this economic system, all businesses are owned and operated by governments, which means that private enterprise and ownership of land are prohibited or limited. The advantages of this system are that it prioritizes social contribution over individuals' pleasure and profit, that governments are able to effectively mobilize necessary resources for efficient use, and that it prevents market failures. In contrast, the disadvantages are limited freedom within a business, individuals' unrecognized needs, a lack of consumer choices, and a lack of competition, which may lead to a lack of innovation.
A market economy is a system in which interactions between suppliers and consumers play a significant role in making economic decisions based on their interests. Because of this self-governed style of economy, governments usually have little or no intervention in private businesses and income policies. The benefits of a market economy are that it is adaptable to different conditions, consumers have more choices in products to buy from, anyone has the opportunity to start and control their own business, and competition between companies motivates innovation. The disadvantage, on the other hand, is that it leads to instability in business, disparities in income, a wealth gap, and market failure.
A mixed economy is a combination of command and market economies in which government intervention and the private sector coexist for economic activities. In this system, markets control their own businesses; however, governments are also allowed to be involved. Some benefits of a mixed economy are that while business owners have the freedom to make their own economic decisions based on their interests, governments are able to support them in order to reduce market failures, disparities in wealth and income, and unstable businesses. However, this might create an imbalance as governments may provide too much or too little help, and some markets might rely completely on governments' support while others might not receive any help, creating inequality in companies and industries.