Advantages and disadvantages of the different economic types
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Published: Mon, 5 Dec 2016
What is economics? Economics is the study of the forces of supply and the demands allocate deficient resources. Economics is divided into microeconomics and macroeconomics. Microeconomics is something doing with the behavior of firms, consumers, and also about the role played by the government. Macroeconomics is more to inflation, industrial production, unemployment and the role played by the government. Microeconomics is the study about the behavior of small economics unit, for an example, individual consumers or households. Microeconomics is behavior of individual units. Microeconomics main concern is about the factors that affects an individual economics choice.
Other than that, economics also can be said as branch of social science that can read the production distribution and the consumption of goods and service. Economics also include scarcity, choice, households, goods and productions as a definition. Economics system are studies of the method and institution where societies determine about the ownership, direction and allocation of economics. There are three types of economics system;
Socialist system is a system that can be defined as a centrally planned or can be said as command economics. This system is fully controlled by the government. All the choice about resources are all made by the government.
Capitalist system means free market economics. This system is like a freedom economy. This is because of the decisions made by the people. This system is mainly about the people in the country.
Mixed economy is an economy based on the free enterprise principle. There is still some form of direct intervention and it is controlled by the government.
Mixed economy can be said as a form of organization where both capitalist economy and socialist economy are found. In mixed economy there is the presence of private economic freedom with centralized planning and the common goal of avoiding the problems which comes because of capitalism and socialism. In the mixed economy system the main authorization of the economic activities are mainly by the governmentâ€™s regulation and the licensing policies. For an example, if someone wants to open a business, they must register and take license from the government for that particular business. So in this way, the government becomes a big power in the country.
Mixed economy is also known as dual economy. In a mixed economy, the government runs things as post office, libraries, hospital and many more. Even when there is an industry which is not run by the business, still government get taxes and regulation like wage controls. Most of the people all over our country have no problem with the government take control of things like highway construction, birth certificate, national service economy may seem to be very easy as it is but there are some disadvantages in mixed economy also. The biggest disadvantage is between the public and private sector because they easily get blurred or sometimes shift one way or another from time to time mixed economy usually increase more government control and less individual freedom. This is why mixed economy is always in an evolutionary process.
Mixed economy involve in two sectors which are public sector and private sector. Both of these sectors exists and function to achieve the national objectives. Both of these sectors is the one make the economic system in the country. Mixed economy is the combination of private enterprise with the government enterprise. There is also freedom of enterprise, private ownership and profit earning in this economy. This economy is used in most of the countries in the world.
There are a lot of advantages in mixed economy, for instance, mixed economy help in increasing the national production in the country. In mixed economy, both the public and the private sectors work hard to bring out more good production. The entire problem which is created by the free enterprise and the public control are solved through the mixed economy. Mixed economy provides freedom of enterprise ownership and also the profit earning. There is also social welfare and political freedom in mixed economy. Other than that, all the national resources are utilized under the mixed economy.
Most countries in the world have mixed economy. The mixture of two economic can imply a variety of difference for the country. Some of the differences are beneficial and some are neutral. Mixed economy can keep the workforces employed and provide a market for the raw material that they consume in the production. Additionally, mixed economy has the ability to ensure production of social goods.
Disadvantages of mixed economy are that it is a half way house. Mixed economy is not very helpful in access optimal use of national resources. Other than that, mixed economy also suffers from disadvantage of both the capitalism and the socialism. Mixed economy is said seldom to achieve progress. Mixed economy also has unsuccessful regulations that may paralyze features of production. Mixed economy also has a problem such as lack of price control management that can cause shortage in goods and this can result in a recession.
The disadvantage of a mixed economy really depends on how it is. For an example, if the mixed economy is more to the command economy, it is not too good also. Mixed economy also has many different characteristics. For a example, mixed economy, A might have high tax low regulation while mixed economy B might have mow tax high regulation. This shares a different set of disadvantage because set A gets more profits because of the high tax but as for B it will get lesser profit of the lower tax.
Free enterprise system is an economic system where individuals can make their own economic decision. Because it is said free from government constraints. The advantage of free enterprise system is because there are no government restrictions and this makes more opportunities for the individuals. Therefore, in free enterprise system are more potential for private business. Individuals get more freedom and business opportunity because of the enterprise systems. There are more profit in free enterprise system and less competition and also there are more demands in the production and distribution of goods and services. As there is always a advantage, there is also disadvantage in free enterprise system. The disadvantages are lack of government control, for example, corruption and bribery. In free enterprise system this is the main problem, bribery. The control of that state goes to few hands and the economy move more towards monopoly system. Moreover, there are no reforms in the state and there is also income gap that increases which paralyze the economy in a country.
Central command system refers to a system which is organized by a government. Central command system usually determines how a countryâ€™s resources should be exploited. Other than that, it also shows how goods and services should be produced and how it should be distributed. Most industrialized countries practices some form of government oversight. Central command system can be said as a true planned economics. Some of the central command system has permit transactions on a small scale but some larger industries are either managed directly.
This is why mixed economy is said to have the combination if the free enterprise system and the central command system. The advantage of both the free enterprise system and the central command system is the combination of the mixed economy .In mixed economy, price mechanism plays a part. Price mechanism is allowed to operate but sometimes in some cases the price mechanism fails or can say that it fails to work against public interest.
What is price mechanism? Price mechanism is system of interdependence between the supply of a good or service and the price. Price mechanism is basically about the price up when supply is below demand and price down when the supply exceeds demand. Price mechanism also stops supply when suppliers leave the price when the supplies when suppliers leave the market due to the low prices and increases the price there is more suppliers enter the market due to the high price. Price mechanism is also called price system. Price mechanism operates in a free market situation where their forces of petition and supply mechanism prices. Both the producers and the consumers base their specific production and the consumption plans on the current market price. When the consumers pay the price foe a commodity, they motivate the producer of that commodity. The entire price that is paid becomes a vote for more production.
Prices are determined by the shortage and surpluses. Sometimes there is shortage of product. This is because of the price to rise, whereas the surplus causes the price to fall. The price is the one which determine how much of a product a producer decides to supply. When the product price is high, the profit also gets greater and more products profit motive. When the consumer needs more goods or product, the demands get higher and this makes shortage of product or goods and this also causes the price to rise. This makes the consumers to be discouraged but the producers are encouraged to supply more. The price of the good will continue o tries until the shortage problem is solved.
When this problem comes, how does the government play a part? The government plays a part by fixing the prices above or below the free market equilibrium. They also put tax on the production or the sale of the carious goods. Other than that, they also subsidize the production or the sale of the various goods. Price control is the clear example where the government intervention disrupts the price mechanism. The government subsidy will artificially reduce the price and boost the demand of the goods and as foe the government tax, it increases the productâ€™s price to the consumer and decreases the demand also. This explains how government can help to sort out the problem of shortage of product and the raised up price.
In a nutshell, mixed economy there is many advantages and also mixed economy helps to run a better country. Mixed economy makes a better economy in a country because of the give and take policy by the government and the people in the country. Economics should be stable as that the people in the country wonâ€™t have any problems. Free enterprise system and central command system is the combination of the mixed economy. Both the system has a lot of advantages. Price mechanism must also be stable so that the mixed economy is stable. Price mechanism plays a big part because it can make havoc in the government and the consumers. Therefore, price mechanism works for mixed economy.
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