LO2.1 Explain how economic systems attempt to allocate and make effective use of scarce resources effectively
Free market economy: sometimes called capitalism.in this type.in this type of economy most decisions are taken through the operation of the market mechanism . Supply and demand and to pay influence decision making. There is very little government intervention in business decision” (BPP, 2007, pp. 138-170), (Doc.mbalib.com. 2013)
Command economy:” it is refered to as state controlled .in this type of economy decisions are taken collectively, usually by centrall planning commitees.the government controles what is produced ,gow much is produced the price and who the goods are available to.decisions are intended to benefit all members of society.citizens all contribute to the common good of state.there is a lot of state interventions in this type of economic system.” (BPP, 2007, pp. 138-170), ), (Doc.mbalib.com. 2013)
The goods of a free market economy (and the bads of command economies)
Efficiency. free market economies are very competitive. A lot of their industries are thought to be almost perfect competitive , production efficiency will hapen. free market economies distribute their resources more efficiently.
Choice. Companies will produce whatever consumers are prepared to buy. the consumer is sovereign., there are no restrictions on what the firms can produce. there will be a bigger choice of services and goods in a free market economy compared with a command economy.
Innovation. companies will be looking to produce something new to get ahead of their competitors.. there are no incentives for the busineses to be innovative. As long as they produce the essentials the planners will be happy.
Higher economic growth rates.. The most successful economy in the world (in terms of size) has been the USA, and they have been one of the freest economies in the world.
The bads of a free market economy (and the goods of a command economy)
Public goods cannot be provided privately because of their two characteristics non-excludability and non-diminishability in a free market one...