ECONOMIC SYSTEMS

 

1-      Economic system is all the institutional means through witch national resources are used to satisfy human wants.

2-      Planned command economy is all decisions are made by govt or its agencies.

3-      Free market or free enter-price or Laissey Fair economy is                 the resources allocated via the price mechanism

                                                               i.      No government intervention.

                                                             ii.      Decisions are taken by firms and individuals

                                                            iii.      Consumer sovereignty

4-      The mixed economy is resources allocated partly via the price mechanism and partly via govt intervention

Key features	Free market	Command economy
Ownership of resources	Private	State
Private profit	Yes	No
Allocation of resources	Price mechanism	Central planned authority
Ownership of production	Private	State
Freedom of choice	Yes	No
Roles of govt	Very limited	High

5-      Price mechanism  ---------> the invisible hand                                          D_g rises  -------> D_g > S_g -------> P_g  rises --------- S_g  rises (and) D_g  falls ------->until D_g = S_g

6-      Factor market                                                                                                              S_g rises -------> D_i rises --------> shortage = D_i > S_i ------->P_i rises ---------------> Si rises (and) D_i falls --------> until D_i = S_i